Bidding Behaviour in Second-Price and Random Nth-Price Auctions with Interval Private Values
When valuing market and non-market goods, using point estimates of willingness to pay (WTP) may generate biased results because people are often observed to have a range of acceptable values in mind. We investigate how individuals express their bids or WTP given uniform and skewed intervals of private values in the lab with two demand-revealing auction mechanisms — a second-price auction and a random nth-price auction. The participants are allowed to bid in intervals. Since our participants face the risks of losing the auction and/or money due to uncertainties over private values and market price, we explore the effect of risk preferences on bidding behaviour. We find that (i) participants mostly bid in intervals; (ii) risk-averse participants prefer to bid in point estimates across the auction types; (iii) participants bid truthfully in the second-price auction given skewed interval values; (iv) the random nth-price auction, however, performs better than the second-price auction in extracting the true values given uniform interval values and left-skewed interval values, when we divide the skewed intervals into left- and right-skewed intervals; and (v) the mean of interval bids can be used to derive the demand for true WTP for a good with value uncertainty. We also find that risk-loving individuals overbid significantly, but risk preferences do not affect overall bidding behaviour
Year of publication: |
[2023]
|
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Authors: | Banerjee, Prasenjit ; Chakrabarti, Debkumar ; Datta, Souvik ; Hussain, Abul Maala |
Publisher: |
[S.l.] : SSRN |
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