Excess information acquisition in auctions
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The acquisition of information is an important feature in most auctions where one’s exact private valuation is unknown ex-ante. We conducted the first experiment in testing a risk-neutral expected surplus maximization model with this feature. Varying the auction format and the cost of information acquisition we found bidders in most cases acquired too much information. Moreover, bidders who remained uninformed placed bids significantly below the optimal bid. The general prediction concerning revenue and efficiency remains valid, as a higher information cost was associated with lower revenues and efficiency rates. We explore different ex-post explanations for the observed behavior and show that regret avoidance can explain the data while risk aversion and ambiguity aversion cannot.
KeywordsDynamic auctions Information acquisition Bidding behavior
JEL classificationC91 D44 D80
We would like to thank Jennifer Brown, Jacob Goeree, Axel Ockenfels, Alexander Rasch, and Achim Wambach for their helpful comments and discussion. Financial support from the German Research Foundation through the research unit “Design & Behavior” (FOR 1371) and the Fulbright Commission is gratefully acknowledged. Substantial parts of this paper were written when the first author stayed at Yale University in 2011/2012. The author thanks the department of economics for its hospitality. We would also like to thank our two anonymous referees and the associate editor for their detailed and helpful comments that have greatly improved this paper. All remaining errors are our own.
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