DP10377 Second-price common value auctions with uncertainty, private and public information: experimental evidence

Author(s): Isabelle Brocas, Juan D Carrillo, Manuel Castro
Publication Date: February 2015
Keyword(s): cursed equilibrium, Laboratory experiments, level-k, second price common value auctions, winner's curse
JEL(s): C92, D44, D82
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10377

We conduct a laboratory experiment of second-price sealed bid auctions of a common value good with two bidders. Bidders face three different types of information: common uncertainty (unknown information), private information (known by one bidder) and public information (known by both bidders), and auctions differ on the relative importance of these three types of information. We find that subjects differentiate insufficiently between private and public information and deviate from the theoretical predictions with respect to all three types of information. There is under-reaction to both private and public information and systematic overbidding in all auctions above and beyond the standard winner's curse. The Cursed Equilibrium and Level-k models successfully account for some features of the data but others remain unexplained.