When Curiosity Kills the Profits: An Experimental Examination

UC Berkeley XLab Working Paper No. XL05-004

22 Pages Posted: 12 May 2005

See all articles by Julian C. Jamison

Julian C. Jamison

University of Exeter Business School - Department of Economics; World Bank eMBeD (Mind, Behavior, and Development); Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); Innovations for Poverty Action

Dean S. Karlan

Yale University; Innovations for Poverty Action; Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: March 2005

Abstract

Economic theory predicts that in a first-price auction with equal and observable valuations, bidders earn zero profits. Theory also predicts that if valuations are not common knowledge, then since it is weakly dominated to bid your valuation, bidders will bid less and earn positive profits. Hence, rational players in an auction game should prefer less public information. We are perhaps more used to seeing these results in the equivalent Bertrand setting. In our experimental auction, we find that individuals without information on each other's valuations earn more profits than those with common knowledge. Then, given a choice between the two sets of rules, half the individuals still preferred to have the public information. We discuss possible explanations, including ambiguity aversion.

Keywords: First-price auctions, experiments, value of information, common knowledge, ambiguity

JEL Classification: C91, D44, D80

Suggested Citation

Jamison, Julian C. and Karlan, Dean S., When Curiosity Kills the Profits: An Experimental Examination (March 2005). UC Berkeley XLab Working Paper No. XL05-004. Available at SSRN: https://ssrn.com/abstract=719784 or http://dx.doi.org/10.2139/ssrn.719784

Julian C. Jamison (Contact Author)

University of Exeter Business School - Department of Economics ( email )

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Exeter, EX4 4RJ
United Kingdom

World Bank eMBeD (Mind, Behavior, and Development) ( email )

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Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

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Innovations for Poverty Action ( email )

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Dean S. Karlan

Yale University ( email )

Box 208269
New Haven, CT 06520-8269
United States

Innovations for Poverty Action ( email )

1731 Connecticut Ave, 4th floor
New Haven, CT 20009
United States

Massachusetts Institute of Technology (MIT) - Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

E60-246
77 Massachusetts Avenue
Cambridge, MA 02139
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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