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Out-of equilibrium bids in auctions—Wrong expectations or wrong bids

Oliver Kirchkamp and J. Philipp Reiß

Abstract:

Bids in private value first-price auctions consistently deviate from risk neutral symmetric equilibrium bids. To understand these deviations we present a novel experimental procedure which allows to study the formation of expectations separately from the determination of a best reply against these expectations.

We extensively test the internal validity of this setup. We find that off equilibrium behaviour are not due to wrong expectations but due to deviations from a best reply.

JEL-Classification: C92, D44

Keywords: Experiments, Auction, Expectations.