Elicited bid functions in (a)symmetric first-price auctions

Elicited bid functions in (a)symmetric first-price auctions^*

Paul Pezanis-Christou and Abdolkarim Sadrieh

June 4, 2003

Abstract

We report on a series of experiments that examine bidding behavior in first-price sealed bid
auctions with symmetric and asymmetric bidders. To study the extent of strategic behavior,
we use an experimental design that elicits bidders’ complete bid functions in each round
(auction) of the experiment. In the aggregate, behavior is consistent with the basic equilibrium
predictions for risk neutral or homogenous risk averse bidders (extent of bid shading, average
seller’s revenues and deviations from equilibrium). However, when we look at the extent of
best reply behavior and the shape of bid functions, we find that individual behavior is not in
line with the received equilibrium models, although it exhibits strategic sophistication.

JEL Codes:

D44, C9

Keywords :

Asymmetric first-price auctions, private independent values, elicited bid functions, constant
relative risk aversion, empirical best replies, experimental methods

Affiliations

^* We thank Reinhard Selten and seminar participants at Tilburg University, University of Magdeburg, and at the
Economic Science Association Conference for helpful comments. This research benefited from financial support
from the European Commission through a TMR-ENDEAR Network Grant (FMRX-CT98-0238) and a Marie
Currie Fellowship (Sadrieh: HPMF-CT-199-00312) and from the Deutsche Forschungsgemeinschaft through
■SFB 303.

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