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Dominant Strategy Adoption and Bidders’ Experience with Pricing Rules

Published online by Cambridge University Press:  14 March 2025

Ronald M. Harstad
Ronald M. Harstad*
Affiliation:
Faculty of Management and RUTCOR, Rutgers University, 640 Bartholomew Road, Piscataway, NJ 08854-8003, USA
*
email: harstad@rutcor.rutgers.edu
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Abstract

Truthful revelation is a dominant strategy in both English (oral ascending bid) and second-price sealed-bid private-values auctions. Controlled observations of English auctions are largely consistent with the dominant strategy prediction, but laboratory second-price auctions exhibit substantial and persistent overbidding, even with prior experience. However, the experience of having bid in an English auction has a significant learning effect, moving bidding in subsequent second-price auctions closer to the dominant strategy. I explore two treatments isolating facets of the lessons learned from English auction participation, leading me to the following conclusions. Part of the lesson carried over appears to be considering prices one-by-one, but most of it appears to be a crude awareness that overbidding leads to losses. A claim that English auction experience teaches subjects to recognize the dominant strategy in second-price auctions seems overly optimistic. I introduce a nonparametric technique to test coefficient restrictions when the assumption of normally distributed errors is untenable.

Keywords

auctionsexperimentsdominant strategynonparametric coefficientrestriction test

JEL classification

D44: AuctionsC9: Design of Experiments

Information

Type
Research Article
Information
Experimental Economics , Volume 3 , Issue 3 , December 2000, pp. 261 - 280
Copyright
Copyright © 2001 Economic Science Association

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