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Excess information acquisition in auctions

Published online by Cambridge University Press:  14 March 2025

Vitali Gretschko and
Alexander Rajko
Vitali Gretschko*
Affiliation:
University of Cologne, Albertus Magnus Platz, 50923 Cologne, Germany
Alexander Rajko
Affiliation:
University of Cologne, Albertus Magnus Platz, 50923 Cologne, Germany
*
gretschko@wiso.uni-koeln.de
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Abstract

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.

Keywords

Dynamic auctionsInformation acquisitionBidding behavior

JEL classification

D44: AuctionsC91: Laboratory, Individual BehaviorD80: General

Information

Type
Original Paper
Information
Experimental Economics , Volume 18 , Issue 3 , September 2015, pp. 335 - 355
Copyright
Copyright © 2014 Economic Science Association

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Footnotes

Electronic supplementary material The online version of this article (doi:https://doi.org/10.1007/s10683-014-9406-z) contains supplementary material, which is available to authorized users.

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