Corresponding author: J. Philipp Reiss, Department of Economics, Maastricht University, P.O. Box 616, 6200 MD Maastricht, The Netherlands. Email: p.reiss@MaastrichtUniversity.nl.
Out-Of-Equilibrium Bids in First-Price Auctions: Wrong Expectations or Wrong Bids*
Version of Record online: 11 JUL 2011
© 2011 The Author(s). The Economic Journal © 2011 Royal Economic Society
The Economic Journal
Volume 121, Issue 557, pages 1361–1397, December 2011
How to Cite
Kirchkamp, O. and Reiß, J. P. (2011), Out-Of-Equilibrium Bids in First-Price Auctions: Wrong Expectations or Wrong Bids. The Economic Journal, 121: 1361–1397. doi: 10.1111/j.1468-0297.2011.02455.x
Financial support from the Deutsche Forschungsgemeinschaft through SFB 504 is gratefully acknowledged. We thank Jean-Jacques Herings, Arno Riedl, participants in seminar and conference audiences in Aberdeen, Bayreuth, Berlin, Bonn, Cologne, Dundee, Edinburgh, Erfurt, Maastricht, Jena, Shanghai, St. Andrews and Vienna. The article greatly benefited from helpful suggestions and comments of David Myatt (the editor) and three anonymous referees.
- Issue online: 1 DEC 2011
- Version of Record online: 11 JUL 2011
- Submitted: 16 September 2008 Accepted: 20 January 2011
Deviations from risk-neutral equilibrium bids in auctions can be related to inconsistent expectations with correct best replies or correct expectations but deviant best replies (e.g. because of risk aversion, regret, quantal-response mistakes). To distinguish between these two explanations, we use a novel experimental procedure and study expectations together with best replies in symmetric and asymmetric auctions. We extensively test the internal validity of this setup. We find that deviations from equilibrium bids do not seem to be because of to wrong expectations but because of deviations from a risk-neutral best reply.