Endogenous entry in lowest-unique sealed-bid auctions

Lowest-unique sealed-bid auctions are auctions with endogenous participation, costly bids, and the lowest bid among all unique bids wins. Properties of symmetric NEs are studied. The symmetric NE with the lowest expected gains is the maximin outcome under symmetric strategies, and it is the solution to a mathematical program. Comparative statics for the number of bidders, the value of the item and the bidding cost are derived. The two bidders’ auction is equivalent to the Hawk–Dove game. Simulations of replicator dynamics provide numerical evidence that the symmetric NE with the lowest expected gains is also asymptotically stable.     

Ambiguity aversion in first-price sealed-bid auctions

Experiments on first-price sealed-bid auctions with independent private values have shown that submitted bids typically exceed Nash-equilibrium predictions for risk-neutral bidders. Existing bidding models explain this phenomenon by assuming that the bidders are risk-averse and capable of drawing complete and correct inferences about their winning probabilities. In this article, we use the Choquet expected utility (CEU) theory to demonstrate that the observed bidding behavior can also be attributed to ambiguity aversion which causes the bidders to underestimate their chances of winning the auction. Empirical support for CEU bidding models is given through an analysis of recent bidding data.     

Sequential asymmetric auctions with endogenous participation

In this paper we suggest a model of sequential auctions with endogenous participation where each bidder conjectures about the number of participants at each round. Then, after learning his value, each bidder decides whether or not to participate in the auction. In the calculation of his expected value, each bidder uses his conjectures about the number of participants for each possible subgroup. In equilibrium, the conjectured probability is compatible with the probability of staying in the auction. In our model, players face participation costs, bidders may buy as many objects as they wish and they are allowed to drop out at any round. Bidders can drop out at any time, but they cannot come back to the auction. In particular we can determine the number of participants and expected prices in equilibrium. We show that for any bidding strategy, there exists such a probability of staying in the auction. For the case of stochastically independent objects, we show that in equilibrium every bidder who decides to continue submits a bid that is equal to his value at each round. When objects are stochastically identical, we are able to show that expected prices are decreasing.     

Inducing risk-neutral preferences: An examination in a controlled market environment

This article reports 15 first-price auction experiments, each with four bidders, designed to test Cedric Smith' (1961) hypothesis that risk-neutral behavior can be induced in subjects' decisions by paying them in lotteries on money that are linear in the outcome probabilities. We choose the first-price auction environment because of its relatively high success in surviving a large number of tests, which contrasts with the widely documented tendency of subjects to violate the expected utility axioms in making choices among gambles. In the first five experiments, subjects were experienced in first-price auctions with monetary rewards. We prescreened these subjects for exceptionally high bidding consistency with the constant relative risk-averse model. The results unyielded only weak support for the risk-neutralizing procedure (3 of 10 risk-averse cases became risk-neutral, but only 1 in 8 that were retested continued to exhibit risk-neutral behavior). We recruited 16 new subjects with no previous experience for four lottery-only auctions. Eight of the 16 subjects bid as if risk-neutral, but in a retest of 12 subjects only 2 remained consistently risk-neutralized. Finally we recruited 12 inexperienced subjects, and each subject bid against 3 robot bidders whose bidding strategies were known to the human bidder. We use this procedure to control for Nash expectations. These 12 subjects were run under both monetary and lottery reward conditions. Two of the 12 subjects bid as if risk-neutral in the lottery auction, but both of these subjects had shown risk-neutral behavior with monetary rewards. In conclusion, we find very weak support for the risk-neutralizing procedure. We caution other researchers to run calibration tests of the procedure in the particular context they are studying to assess its reliability.     

On the equivalence between descending bid auctions and first price sealed bid auctions

Bidding the same price in descending bid auctions and in first price sealed bid auctions is equivalent to expected utility maximizing behavior, and this is equivalent to dynamically consistent bidding. The claim that, in strategic form, descending bid and first price sealed bid auctions are the same game is thus shown to be false, since the mapping from strategies to payoffs is not the same for the two auction forms.     

Disappointment Aversion in internet Bidding-Decisions

The article presents an Internet experiment where subjects sequentially bid for basic gifts and binary-lotteries on these gifts in incentive compatible Vickrey auctions. Subjects exhibit uniformly pessimistic prize-weighting in spite of precautions to reduce suspicion and prohibit collusion. The bids for lotteries are close to the minimal payable value, even when the probability of obtaining a better prize is larger than 50%. Prize-weighting becomes even more conservative as the distance in value of payable prizes increases. The twofold aversive affect appears for three distinct groups of students; we demonstrate, however, that the same subjects overweight small win-probabilities in standard binary-choice.

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Divide the Dollar: Three solutions and extensions

Divide the Dollar (DD) is a game in which two players independently bid up to 100 cents for a dollar. Each player receives his or her bid if the sum of the bids does not exceed a dollar; otherwise they receive nothing. This game has multiple Nash equilibria, including the egalitarian division of (50, 50), but this division is not compelling except for its symmetry and presumed fairness.This division is easy to induce, however, by punishing — more severely than does DD — deviations from it, but these solutions are not reasonable. By altering the rules of DD, however, one can induce an egalitarian division (by successive elimination of weakly dominated strategies), but no reasonable payoff scheme produces this division with egalitarian bids of 50.Three alternatives to DD are analyzed. DD1, which rewards lowest bidders first, shows how an egalitarian outcome can be induced with equal but nonegalitarian bids. DD2, which adds a second stage that provides the players with new information yet restricts their choices at the same time, is used to introduce dominance inducibility. DD3 combines the features of DD1 and DD2, is reasonable (like DD1), makes calculations transparent (like DD2), and induces egalitarian bids as well as the egalitarian outcome. The possible application of the different procedures to a real-world allocation problem (setting of salaries by a team), in which there may be entitlements, is described.     

Equilibrium Bidding without the Independence Axiom: A Graphical Analysis

In this paper we examine optimal bidding without the independence axiom in a unified framework which allows for a clear graphical representation. Thus, we can show very simply the independence axiom to be a necessary and sufficient condition on preferences for strategical equivalence of the two first-price and second-price auctions, respectively, and for the second-price sealed-bid auction to be demand revealing. The analysis reveals that the betweenness property is necessary and sufficient for the ascending-bid auction to be demand revealing while optimal bids exceed (are less than) bidders' valuations, iff preferences are quasiconcave (quasiconvex). Furthermore, it can be shown that fanning out (fanning in) leads to a higher (lower) selling-price in open than in sealed-bid auctions.     

Inducing risk-neutral preferences: Further analysis of the data

The lottery payoff procedure does not successfully induce risk-neutral bidding behavior in first-price, sealedbid auctions. This conclusion follows from both ordinary-least-squares estimation with natural data and leastabsolute-deviation estimation with transformed data from numerous experimental designs. Lottery payoffs do not succeed in inducing behavior predicted from standard expected utility theory assumptions or from assumed utility from winning and/or income thresholds. In contrast, first-price auction experiments with monetary payoffs yield results that are consistent with general models of bidding in the independent private values information environment.     

Why a Simple Second-Price Auction Induces Efficient Endogenous Entry

This article further studies ex ante efficient auctions in the setting of Stegeman (1996 Participation costs and efficient auctions, Journal of Economic Theory 71, 228–259.), where there exist entry costs for bidders who know their valuations. An alternative method is established to address efficient auctions. This method illustrates the intuition why the ex ante efficient allocation is Bayesian implementable through the Stegeman (1996) auction (a second-price auction with a reserve price equal to seller’s valuation and no entry fee). More importantly, our method leads to an alternative ex ante efficient auction that implements uniquely the efficient entry. Thus, this alternative auction solves the entry indeterminacy problem of the Stegeman (1996) auction, which generally induces inefficient entry equilibria besides the efficient ones.      

Implementing and testing risk-preference-induction mechanisms in experimental sealed-bid auctions

Risk-preference-inducing lottery procedures can serve as valuable tools for experimental economists. However, questioning their effectiveness, experimenters may avoid them even when predictions and conclusions depend crucially on risk preferences. Here, I review risk-preference-induction attempts in sealed-bid auctions, discussing factors that promote or hinder success. Making the procedure very transparent and having subjects learn about it in simple environments promote success. Hysteresis resulting from switching between monetary payoffs and lottery procedures in one environment hinders success. Thus, lottery procedures appear sensitive to the implementation. However, implemented carefully, they can generate behavior consistent with the intended preferences.     

Theory and individual behavior of first-price auctions

First-price auction theory is extended to the case of heterogeneous bidders characterized byM-parameter log-concave utility functions. This model, and its specific two-parameter constant relative risk averse special case, is generally supported by the results of 47 experiments. The one-parameter special case that comprises most of the theoretical literature is not supported by the experiments. One anomaly for the two-parameter model is that too many of the subjects exhibit positive (or negative) intercepts in their linear estimated bid functions. Accordingly, we develop a specific three-parameter model, which introduces a utility of winning, and a threshold utility of surplus. The new model, tested directly by introducing lump-sum payments or charges for winning, is not falsified by the new experiments.     

The influence of probabilities on the response mode bias in utility elicitation

The response mode bias, in which subjects exhibit different risk attitudes when assessing certainty equivalents versus indifference probabilities, is a well-known phenomenon in the assessment of utility functions. In this empirical study, we develop and apply a cardinal measure of risk attitudes to analyze not only the existence, but also the strength of this phenomenon. Since probability levels involved in decision problems are already known to have a strong impact on behavior, we use this approach to study the impact of probabilities on the extent of the response mode bias. We find that the direction in which probabilities influence measured risk aversion is the opposite in the certainty equivalence (CE) method versus in the probability equivalence (PE) method. Utilizing the CE elicitation approach leads to an increase of risk seeking for gambles involving high probabilities. For the PE method, subjects tend to behave risk averse with gambles of high probabilities. This behavior is reversed in the gain domain. This “tailwhip” effect is consistently replicated in several experiments, involving both loss and gain domains of lotteries.     

Learning under compound risk vs. learning under ambiguity – an experiment

We design and conduct an economic experiment to investigate the learning process of agents under compound risk and under ambiguity. We gather data for subjects choosing between lotteries involving risky and ambiguous urns. Agents make decisions in conjunction with a sequence of random draws with replacement, allowing us to estimate the agents’ beliefs at different moments in time. For each type of urn, we estimate a behavioral model for which the standard Bayesian updating model is a particular case. Our findings suggest an important difference in updating behavior between risky and ambiguous environments. Specifically, even after controlling for the initial prior, we find that when learning under ambiguity, subjects significantly overweight the new signal, while when learning under compound risk, subjects are essentially Bayesian.     

Money Does Not Induce Risk Neutral Behavior,but Binary Lotteries Do even Worse

If payoffs are tickets for binary lotteries, which involve only two money prizes, then rationality requires expected value maximization in tickets. This payoff scheme was increasingly used to induce risk neutrality in experiments. The experiment presented here involved lottery choice and evaluation tasks. One subject group was paid in binary lottery tickets, another directly in money. Significantly greater deviations from risk neutral behavior are observed with binary lottery payoffs. This discrepancy increases when subjects have easy access to the alternatives' expected values and mean absolute deviations. Behavioral regularities are observed at least as often as with direct money payoffs.     

The impact of self-protection and self-insurance on individual response to risk

We develop four experimental markets to examine how individuals respond to risk: self-protection and self-insurance in both private and collective auctions. First, we find evidence that the mechanism used to reduce risk is important. Results indicate that the upper and lower bounds on value were elicited by the private self-protection and the collective self-insurance markets, respectively. Second, the robustness of these results declined with low-probability lotteries. We find further evidence that individuals overestimate the impact of low-probability events. Overestimation decreased, however, with repeated market exposure. Third, the four markets induced rapid value formation. Usually only one or two additional market trials were necessary before an individual's perception and valuation of reduced risk stabilized.     

价值中立在社会工作实务中的运用

在社会工作中,价值中立是指社会工作者有阶段性地保持价值中立的立场,以客观的态度对待案主的问题和行为,并对案主的价值观不加以评价。在社会工作实务中,保持价值中立对于社会工作者有效地协助案主分析解决问题显得十分重要。如何在实务中保持价值中立,对于社会工作者来说则显得比较困难。结合实习的经验及思考,笔者从个案工作和小组工作两个方面的实例阐述自己对于如何做到价值中立的认识。个案工作不同阶段、小组工作中不同角色要做到价值中立不同的表现是本文的讨论重点。     

Risk taking on behalf of others: The role of social distance

Individuals take decisions on behalf of others in many different contexts. In this paper, we focus on lotteries with negative expected value and study if (and how) risky choices made on behalf of another person differ i) compared to decisions which do not affect anyone else, and ii) depending on the social distance between who makes the decision and who is affected by it. Our results show that social distance (i.e., whether the person affected by one’s decision is an unknown stranger or a friend) is an important determinant when people decide on behalf of others. Moreover, when deciding on behalf of a friend rather than only for themselves or a stranger, average individual behavior is closer to expected value maximization, exhibiting less risk taking. These findings suggest that responsibility for others’ outcome and the empathy gap affect the decision making process, particularly when the social distance is shortened. The results are robust to different feedback frequencies. Controlling for order effects shows that experiencing a decrease in social distance is crucial in activating this mechanism.     

Getting back on track: the expanded use of PPPs in Ireland since the global financial crisis

The global financial crisis that took hold in late 2008 resulted in a major slowdown of activity in the global market for public-private partnerships (PPPs). Ireland was one of the countries most affected with over 20 major infrastructure PPP projects postponed or abandoned. Since 2012 however, the Irish government has adopted a number of initiatives to make PPP more attractive to bidders and private sources of finance. This paper describes these initiatives and shows that they have been associated with a renewal of PPP activity. It suggests that some of the adopted measures may involve trade-offs between encouraging PPP investment and achieving standard PPP objectives such as economic efficiency and better innovation. However, the attraction of public sources of finance from sources such as the European Investment Bank should result in a relatively lower cost of finance and enhance value for money if providers adopt rigorous risk management strategies.     

Education and anomalies in decision making: Experimental evidence from Chinese adult twins

We estimate the effects of education on two dimensions of decision making behavior—risk and time—beyond those considered to be normal-ranged to encompass behavioral anomalies with respect to expected utility as well as time consistency. We conduct a number of incentivized choice experiments on Chinese adult twins to measure decision making behavior, and use a within-twin-pair fixed-effects estimator to deal with unobservable family-specific effects. The estimation results show that a higher education level tends to reduce the degree of risk aversion towards moderate prospects, moderate hazards, and longshot prospects. For anomalies under risk and uncertainty, college graduates exhibit significantly more Allais-type behavior compared to high school dropouts, while high school graduates exhibit more ambiguity aversion as well as a familiarity preference relative to high school dropouts. For decision making involving time, a higher education level tends to reduce the degree of impatience, and to reduce behavioral anomalies including hyperbolic discounting, dread, and hopefulness. The experimental observations suggest that people with a higher education level tend to exhibit more behavioral anomalies in risk attitudes but fewer behavioral anomalies involving time, hence implying that education has multi-functions in preference formation and human capability building. This study contributes to the understanding of the nature of these behavioral anomalies and the roles of education in human decision making.