Chapter 112 Rewards and Behavior in First Price Auctions

The trading rules for the first price auction can be summarized as follows. A single object is offered in perfectly inelastic supply to N > 2 bidders. Each bidder submits a single bid for the commodity with the understanding that the commodity will be awarded to the highest bidder at a price equal to the highest bid. This chapter examines the impact on subjects' behavior of substantial increases in the size of expected laboratory payoffs and experience in the context of a first price auction. Bidding behavior in this institution has been investigated by experimental economists for over 20 years. Virtually all studies reveal behavior in which: (1) bidding behavior across subjects is heterogeneous; and (2) subjects consistently bid above the level predicted for risk-neutral agents, behavior which is consistent with as if risk averse.