Behavioral Efficiency II: A Simple Laboratory Demonstration

12 Pages Posted: 13 Oct 2011

Date Written: October 9, 2011

Abstract

Laboratory experiments reporting on shortfalls from allocative efficiency of allocation mechanisms depend on the induced-values methodology, which cannot be extended to the field. Harstad [2011] proposes to observe efficiency of allocation mechanisms without knowing motivations via behavior in appropriately designed aftermarkets. This paper demonstrates the approach in a highly simplified economy: allocation of a single unit of an abstract commodity. In the context studied, second-price auctions are observed to yield significantly greater behavioral inefficiencies than first-price auctions, both in terms of frequency of behaviorally inefficient outcomes, and in terms of the expected size of gains from aftermarket trade missed by the auction itself. The design is shown to be field-ready.

Keywords: behavioral efficiency, field experiment methodology, allocative efficiency, efficiency of auctions, aftermarkets

JEL Classification: C9, C93, D01, D61, D03, D46

Suggested Citation

Harstad, Ronald M, Behavioral Efficiency II: A Simple Laboratory Demonstration (October 9, 2011). ISER Discussion Paper No. 819, Available at SSRN: https://ssrn.com/abstract=1943297 or http://dx.doi.org/10.2139/ssrn.1943297

Ronald M Harstad (Contact Author)

University of Missouri ( email )

United States

HOME PAGE: http://harstad.missouri.edu

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