A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: A Laboratory Analysis.

Experiments compare bidding behavior of experienced business executives in the construction contract industry with that of student subjects in efforts to identify differences in behavior between "naive" and "expert" subjects. Qualitatively similar behavior is reported across subject pools as in both cases (1) bidders suffer from the "winner's curse"; (2) increasing the number of bidders exacerbates the winner's curse; and (3) public information reducing uncertainty in cost estimates has the perverse effect (relative to Nash equilibrium bidding theory) of increasing the offer price in the presence of a winner's curse. Copyright 1989 by Royal Economic Society.