Hostname: page-component-7b9c58cd5d-hpxsc Total loading time: 0 Render date: 2025-03-15T15:57:53.935Z Has data issue: false hasContentIssue false
  • English
  • Français

Excess information acquisition in auctions

Published online by Cambridge University Press:  14 March 2025

Vitali Gretschko  and
Alexander Rajko
Vitali Gretschko*
Affiliation:
University of Cologne, Albertus Magnus Platz, 50923 Cologne, Germany
Alexander Rajko
Affiliation:
University of Cologne, Albertus Magnus Platz, 50923 Cologne, Germany
*
[email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

The acquisition of information is an important feature in most auctions where one’s exact private valuation is unknown ex-ante. We conducted the first experiment in testing a risk-neutral expected surplus maximization model with this feature. Varying the auction format and the cost of information acquisition we found bidders in most cases acquired too much information. Moreover, bidders who remained uninformed placed bids significantly below the optimal bid. The general prediction concerning revenue and efficiency remains valid, as a higher information cost was associated with lower revenues and efficiency rates. We explore different ex-post explanations for the observed behavior and show that regret avoidance can explain the data while risk aversion and ambiguity aversion cannot.

Keywords

Dynamic auctionsInformation acquisitionBidding behavior

JEL classification

D44: Auctions C91: Laboratory, Individual Behavior D80: General
Type
Original Paper
Information
Experimental Economics , Volume 18 , Issue 3 , September 2015 , pp. 335 - 355
Copyright
Copyright © 2014 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

Electronic supplementary material The online version of this article (doi:https://doi.org/10.1007/s10683-014-9406-z) contains supplementary material, which is available to authorized users.

References

Bergemann, D, Shi, X, & Välimäki, J (2009). Information acquisition in interdependent value auctions. Journal of the European Economic Association, 7(1), 61–89. 10.1162/JEEA.2009.7.1.61CrossRefGoogle Scholar
Compte, O., & Jehiel, P. (2000). On the virtues of the ascending price auction: New insights in the private value setting, mimeo.Google Scholar
Compte, O, & Jehiel, P (2007). Auctions and information acquisition: Sealed bid or dynamic formats?. RAND Journal of Economics, 38(2), 355–372. 10.1111/j.1756-2171.2007.tb00072.xCrossRefGoogle Scholar
Cooper, DJ, & Fang, H (2008). Understanding overbidding in second price auctions: An experimental study. Economic Journal, 118(532), 1572–1595. 10.1111/j.1468-0297.2008.02181.xCrossRefGoogle Scholar
Davis, A., Katok, E., & Kwasnica, A. (2011). Why sellers should prefer sequential mechanisms, mimeo.Google Scholar
Engelbrecht-Wiggans, R (1988). On a possible benefit to bid takers from using multi-stage auctions. Management Science, 34(9), 1109–1120. 10.1287/mnsc.34.9.1109CrossRefGoogle Scholar
Engelbrecht-Wiggans, R (1989). The effect of regret on optimal bidding in auctions. Management Science, 35(6), 685–692. 10.1287/mnsc.35.6.685CrossRefGoogle Scholar
Engelbrecht-Wiggans, R, & Katok, E (2007). Regret in auctions: Theory and evidence. Economic Theory, 33, 81–101. 10.1007/s00199-006-0180-9CrossRefGoogle Scholar
Engelbrecht-Wiggans, R, & Katok, E (2008). Regret and feedback information in first-price sealed-bid auctions. Management Science, 54(4), 808–819. 10.1287/mnsc.1070.0806CrossRefGoogle Scholar
Filiz-Ozbay, E, & Ozbay, EY (2007). Auctions with anticipated regret: Theory and experiment. American Economic Review, 97(4), 1407–1418. 10.1257/aer.97.4.1407CrossRefGoogle Scholar
Fischbacher, U (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178. 10.1007/s10683-006-9159-4CrossRefGoogle Scholar
Garratt, R, Walker, M, & Wooders, J (2012). Behavior in second-price auctions by highly experienced eBay buyers and sellers. Experimental Economics, 15(1), 44–57. 10.1007/s10683-011-9287-3CrossRefGoogle Scholar
Greiner, B. (2004). An online recruitment system for economic experiments, in Volker Macho, Kurt Kremer (Ed.), Forschung und wissenschaftliches Rechnen 2003, GWDG Bericht 63. Ges. für Wiss. Datenverarbeitung, Göttingen, Germany, no. 13513, pp. 79–93.Google Scholar
Gretschko, V, & Wambach, A (2014). Information acquisition during a descending auction. Economic Theory, 50(2), 79–85.Google Scholar
Guzman, R., & Kolstad, C. (1997). Auction equilibrium with costly information acquisition, Working Paper.Google Scholar
Hausch, DB, & Li, L (1993). A common value auction model with endogenous entry and information acquisition. Economic Theory, 3(2), 315–334. 10.1007/BF01212920CrossRefGoogle Scholar
Hernando-Veciana, A (2009). Information acquisition in auctions: Sealed bids vs. open bids. Games and Economic Behavior, 65(2), 372–405. 10.1016/j.geb.2007.10.015CrossRefGoogle Scholar
Kagel, J, & Levin, D (1993). Independent private value auctions: Bidder behaviour in first-, second-and third-price auctions with varying numbers of bidders. Economic Journal, 103(419), 868–879. 10.2307/2234706CrossRefGoogle Scholar
Lee, T (1985). Competition and information acquisition in first price auctions. Economics Letters, 18(2), 129–132. 10.1016/0165-1765(85)90166-1CrossRefGoogle Scholar
Levin, D, Kagel, JH, & Richard, J-F (1996). Revenue effects and information processing in English common value auctions. American Economic Review, 86(3), 442–460.Google Scholar
Matthews, S (1984). Information acquisition in discriminatory auctions. Bayesian Models in Economic Theory, 5, 181–207.Google Scholar
Parkes, D (2005). Auction design with costly preference elicitation. Annals of Mathematics and Artificial Intelligence, 44(3), 269–302. 10.1007/s10472-005-4692-yCrossRefGoogle Scholar
Persico, N (2000). Information acquisition in auctions. Econometrica, 68(1), 135–148. 10.1111/1468-0262.00096CrossRefGoogle Scholar
Rasmusen, E (2006). Strategic implications of uncertainty over one’s own private value in auctions. BE Journal of Theoretical Economics, 6(1), 1–21.Google Scholar
Rezende, L. (2005). Mid-auction information acquisition, mimeo.Google Scholar
Salo, AA, & Weber, M (1995). Ambiguity aversion in first-price sealed-bid auctions. Journal of Risk and Uncertainty, 11, 123–137. 10.1007/BF01067681CrossRefGoogle Scholar
Shi, X (2012). Optimal auctions with information acquisition. Games and Economic Behavior, 74(2), 666–686. 10.1016/j.geb.2011.08.015CrossRefGoogle Scholar
Supplementary material: File

Gretschko and Rajko supplementary material

Appendix A-E
Download Gretschko and Rajko supplementary material(File)
File 329.6 KB