Credibility in second-price auctions: an experimental test

We provide the first direct test of how the credibility of an auction format affects bidding behavior and final outcomes. To do so, we conduct a series of laboratory experiments where the role of the seller is played by a human subject who receives the revenue from the auction and who (depending on...

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Bibliographic Details
Published inExperimental economics : a journal of the Economic Science Association Vol. 27; no. 1; pp. 58 - 79
Main Authors Dianat, Ahrash, Freer, Mikhail
Format Journal Article
LanguageEnglish
Published New York Springer US 01.03.2024
Springer Nature B.V
Subjects
Auctions
Behavior
Behavioral/Experimental Economics
Bidding
Bids
Cheating
Credibility
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Microeconomics
Operations Research/Decision Theory
Original Paper
Research subjects
Social and Behav. Sciences
Auctions
D90
C90
D44
Experiments
Mechanism design
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Summary:We provide the first direct test of how the credibility of an auction format affects bidding behavior and final outcomes. To do so, we conduct a series of laboratory experiments where the role of the seller is played by a human subject who receives the revenue from the auction and who (depending on the treatment) has agency to determine the outcome of the auction. Contrary to theoretical predictions, we find that the non-credible second-price auction fails to converge to the first-price auction. We provide a behavioral explanation for our results based on sellers’ aversion to rule-breaking, which is confirmed by an additional experiment.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
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ISSN:1386-4157
1573-6938
DOI:10.1007/s10683-023-09802-0