Bidding in First-Price Sealed Bid Auctions Without Feedback Information: The Interaction Effect between Bidding and Market Size Tibor Neugebauer Universität Hannover Prepared for the ESA World-Conference, 2007 LUISS Rome

Paper outline 1.Introduction 2.Experimental study B – human competitors/ Blind interaction 3.Experimental study C – Computerized competitors/ feedback on winning 4.Bidding function of market size N 5.Further results 6.Concluding remarks

1 Auction at Christie‘s

1 Theory of first-price sealed-bid auction in the independent private value model Research question: Are risk neutral Nash equilibrium bids and expected prices good proxies for bids and prices if N becomes larger? RNNE risk neutral Nash equilibrium bid (Vickrey 1961 JF) Expected high bid (x 1 high value)

1 Related literature Evidence on overbidding relative to the risk neutral Nash equilibrium in auctions with feedback information on high bid –Kagel 1995 HEE –…. Evidence on underbidding relative to the risk neutral Nash equilibrium in auctions without feedback information on high bid –Neugebauer and Selten 2006 GEB –Neugebauer and Perote 2007 ExEc

2 Experimental study B Design Interactive BLIND experiment without information feedback n human competitors x it ~ U{0,.., 100} iid, i = 1,.., n, subject’s value n = {3, 5, 7, 9, 14}, treatments software toolbox: zTree Observations: 110 first-year student subjects x 50 bids No information about payoff or competitors’ bids after each auction. Only at the end of the experiment, payoff is revealed.

2 Difference of bid-value ratio and RNNE ratio N = 3

2 Difference of bid-value ratio and RNNE ratio N = 5

2 Difference of bid-value ratio and RNNE ratio N = 7

2 Difference of bid-value ratio and RNNE ratio N = 9

2 Difference of bid-value ratio and RNNE ratio N = 14

4 Bidding function of market size N Estimation Blind Experiment: A = 8.66,  =.639

6 Concluding remarks Bidding in FPA increases with N but not as much as the RNNE predicts. Prices are above expected prices in the Blind experiment for N < 14. Differences decline significantly in N and for N = 14 prices are at the RNNE. The magical number seven plus or minus two, Miller 1957 PsychRev. –“Two or three different tones were never confused. With four different tones confusions are rare, but with five or more tones confusions are frequent. With fourteen different tones listeners make many mistakes.“ (p. 344) PLEASE SEND ME AN TO OBTAIN THE PAPER! THANKS!