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Endogenizing Bidder’s Choice in Financial Assets Auctions – An Experimental Investigation

34 Pages Posted: 3 Nov 2008 Last revised: 18 Oct 2009

Menachem Brenner

New York University (NYU) - Department of Finance

Dan Galai

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Orly Sade

Hebrew University of Jerusalem - Department of Finance

Date Written: June 1, 2009

Abstract

Many financial assets, especially government bonds, are issued by an auction mechanism. An important feature of the design is the auction pricing mechanism: Uniform vs. Discriminatory. Theoretical papers do not provide a definite answer regarding the preference of one mechanism over the other. Experimental papers investigated the issue under an exogenous equal number of bidders. We investigate the bidders choice and the impact of that choice on the outcome of the auction by letting them choose between the two alternative systems. The majority of the bidders in the survey have chosen the uniform method. Those that prefer the uniform auction bid, on average, more aggressively than those that choose the discriminatory one. On average the revenues to the issuer were higher under the uniform price mechanism.

Suggested Citation

Brenner, Menachem and Galai, Dan and Sade, Orly, Endogenizing Bidder’s Choice in Financial Assets Auctions – An Experimental Investigation (June 1, 2009). NYU Working Paper No. FIN-07-011. Available at SSRN: https://ssrn.com/abstract=1293147

Menachem Brenner (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0323 (Phone)
212-995-4233 (Fax)

Dan Galai

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 5883235 (Phone)
972 2 5881341 (Fax)

Orly Sade

Hebrew University of Jerusalem - Department of Finance ( email )

Mount Scopus
Jerusalem, 91905
Israel
972 2 588 3227 (Phone)

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