risk parameters) explains the data slightly better than this nonlinear ad hoc model so that even
in this nonlinear setting, the distinction between game theoretic predictions and those of ad
hoc models is not stark and, as Chen and Plott (1998) note, it may be sensitive to the
statistical specifications of the model.
In this paper, we report an experimental study of behavior in first-price sealed bid auctions
with symmetric and with asymmetric bidders (i.e., bidders who draw their valuations with
replacement from different distributions). We study the independent private value framework
using the theoretical benchmark provided by Maskin and Riley (2000a) in which bidders are
either Weak or Strong, with the former being more likely to draw lower values than the latter.
The goal of our analysis is twofold. First, we are interested to check whether the strategic
considerations that drive the Nash equilibrium outcomes of Vickrey (1961), Cox et al. (1982,
1988) and Maskin and Riley (2000a) are observed under laboratory conditions. Such
considerations include the shape of bid functions and the extent of best reply bidding. For the
asymmetric settings that we consider, the equilibrium bid functions for Weak and Strong
bidders are nonlinear in values and convey well how each type of bidder should optimally
react to his/her rival. Therefore, we can easily assess whether bidders perceived the strategic
implications of their respective value distributions. Second, we are interested to find out
whether the overbidding observed in symmetric settings is also observed in the more realistic
case of asymmetric auctions. Güth, Ivanova-Stenzel and Wolfstetter (2002) and Pezanis-
Christou (2002) report experimental evidence that this is generally the case but they do not
assess this overbidding in terms of equilibrium bidding with constant relative risk preferences.
Interestingly, the effect of such preferences on bidders’ behavior can explain overbidding in
asymmetric auction settings, but only over a range of high values. Therefore, by tracking
behavior across different bidding environments we provide a broader picture of the constant
relative risk aversion hypothesis as an explanation for overbidding in first-price auctions.