We would like to thank David Harless and Oleg Korenok for useful discussions. We would also like to thank a co-editor and three anonymous referees for their comments and suggestions. An extended working-paper version is available at http://www.people.vcu.edu/~aivanov/.
Can Relaxation of Beliefs Rationalize the Winner's Curse?: An Experimental Study
Article first published online: 28 JUL 2010
© 2010 The Econometric Society
Volume 78, Issue 4, pages 1435–1452, July 2010
How to Cite
Ivanov, A., Levin, D. and Niederle, M. (2010), Can Relaxation of Beliefs Rationalize the Winner's Curse?: An Experimental Study. Econometrica, 78: 1435–1452. doi: 10.3982/ECTA8112
- Issue published online: 28 JUL 2010
- Article first published online: 28 JUL 2010
- Manuscript received September, 2008; final revision received December, 2009.
- Common-value auctions;
- winner's curse;
- cursed equilibrium;
- level-k model
We use a second-price common-value auction, called the maximal game, to experimentally study whether the winner's curse (WC) can be explained by models which retain best-response behavior but allow for inconsistent beliefs. We compare behavior in a regular version of the maximal game, where the WC can be explained by inconsistent beliefs, to behavior in versions where such explanations are less plausible. We find little evidence of differences in behavior. Overall, our study casts a serious doubt on theories that posit the WC is driven by beliefs.