When Curiosity Kills the Profits: An Experimental Examination
UC Berkeley XLab Working Paper No. XL05-004
22 Pages Posted: 12 May 2005
Date Written: March 2005
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: Suggested Citation