Selection Bias, Demographic Effects and Ability Effects in Common Value Auction Experiments
49 Pages Posted: 5 Feb 2005
Date Written: June 2005
Abstract
We find clear demographic and ability effects on bidding in common value auctions: inexperienced women are much more susceptible to the winner's curse than men, controlling for SAT/ACT scores and college major; economics and business majors substantially overbid relative to other majors; and those with superior SAT/ACT scores are much less susceptible to the winner's curse, with the primary effect coming from those with below median scores doing worse, as opposed to those with very high scores doing substantially better, and with composite SAT/ACT score being a more reliable predictor than either math or verbal scores by themselves. There are strong selection effects in bid estimates for both inexperienced and experienced subjects that are not identified using standard econometric techniques but rather through our experimental design effects. Ignoring these selection effects is most misleading for inexperienced bidders, as the unbiased estimates of the bid function indicate much faster learning and adjustment to the winner's curse for individual bidders than do the biased estimates.
Keywords: common value auction experiments, selection effects, econometric methods, gender and ability effects
JEL Classification: C9, D44, C24, J16
Suggested Citation: Suggested Citation
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