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Reservation values and regret in laboratory first price auctions: Context and bidding behavior

Author

Listed:
  • Elizabeth Watson

    (Trinity University)

  • Theodore L. Turocy

    (School of Economics and CBESS, University of East Anglia)

Abstract

Recent papers hypothesize that an asymmetry in regret motivates aggressive bidding in laboratory first-price auctions. Subjects emphasize potential earnings foregone from being outbid. Proposed motivators of this asymmetry include the one-to-one relationship in the auction between winning and positive earnings and the ex-post knowledge that bidders who do not win the auction know they earned less than the winning bidder. We design a novel implementation of the first-price auction environment in which these characteristics are not present, while leaving unchanged the expected-earnings maximizing bidding strategy against any fixed beliefs about the bidding behavior of others. Bidding is significantly less aggressive in this treatment. These findings support the hypothesis that aggressive bidding is motivated in part by features of the protocol for incentivizing subjects which are not essential to the auction environment.

Suggested Citation

  • Elizabeth Watson & Theodore L. Turocy, 2011. "Reservation values and regret in laboratory first price auctions: Context and bidding behavior," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 11-14, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:wcbess:11-14
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    References listed on IDEAS

    as
    1. Theodore Turocy & Elizabeth Watson & Raymond Battalio, 2007. "Framing the first-price auction," Experimental Economics, Springer;Economic Science Association, vol. 10(1), pages 37-51, March.
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    Cited by:

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    2. Xiao, Haohan & Xu, Meng, 2022. "Modelling bidding behaviors in shared parking auctions considering anticipated regrets," Transportation Research Part A: Policy and Practice, Elsevier, vol. 161(C), pages 88-106.

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    More about this item

    Keywords

    Auctions; regret; experiments;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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