Bidding Behaviour in Second-Price and Random Nth-Price Auctions Given a Skewed Distribution of Interval Private Values

When valuing market and non-market goods, people are often observed to have a range of acceptable values in mind, due to e.g., “coherent arbitrariness”, rather than a point estimate as suggested by rational choice theory. This lack of a point estimate may lead to biased values of willingness to pay (WTP). In this paper, we investigate how individuals construct their bids or WTP given skewed interval private values. We do so in an induced value lab experiment with demand revealing auction mechanism. We also explore the bid sensitivities across a second-price auction and a random nth-price auction, given skewed interval values. Our results show that (i) the mean of the given skewed interval values is a better measure than the median in explaining bidding behaviour and (ii) the nth-price auction outperforms the second-price one in inducing sincere bidding when values are given in intervals. Finally, we explore the effect of bidders’ risk preferences on bidding behaviour given the uncertainty in both private values and market prices. We find that risk preferences do not affect bidding behaviour