Deciding between the Common and Private Values Paradigm: An Application to Experimental Data

In the application of auction theory to the real world, practitioners must choose ex ante which of the common value or the private values paradigm applies. Since intuition may fail, some authors have proposed to decide statistically between the two models. These studies, however, did not confirm whether the tests validated the true model since field data were used. I propose to use experimental data as well as Monte-Carlo simulations to study different nonstructural rules to decide between the two paradigms. I find that regressions are inconclusive whereas a nonparametric procedure seems to be powerful and robust. Copyright Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association