The Common-Probability Auction Puzzle

More on Kathleen Ngangoue

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*joint with Andy Schotter

Abstract: This paper presents a puzzle in the behavior of experimental subjects in what we call common-probability auctions. In common-value auctions, uncertainty is defined over values while, in common-probability auctions, uncertainty is defined over probabilities. We find that in contrast to the substantial overbidding found in common-value auctions, bidding in strategically equivalent common-probability auctions is consistent with Nash-equilibrium. Additional treatments reveal that subjects valued the auctioned items equally, implying that differences in bidding behavior originate in the strategic uncertainty of the auction.