Does the absence of human sellers bias bidding behavior in auction experiments?

Abstract

This paper studies the impact of the presence of human subjects in the role of a seller on bidding in experimental second-price auctions. Overbidding is a robust finding in secondprice auctions, and spite among bidders has been advanced as an explanation. If spite extends to the seller, then the absence of human sellers who receive the auction revenue may bias upwards the bidding behavior in existing experimental auctions. We derive the equilibrium bidding function in a model where bidders have preferences regarding both, the payoffs of other bidders and the seller's revenue. Overbidding is optimal when buyers are spiteful only towards other buyers. However, optimal bids are lower and potentially even truthful when spite extends to the seller. We experimentally test the model predictions by exogenously varying the presence of human subjects in the roles of the seller and competing bidders. We do not detect a systematic effect of the presence of a human seller on overbidding. We conclude that overbidding is not an artefact of the standard experimental implementation of second-price auctions in which human sellers are absent.

Spite vs. Risk: Explaining Overbidding

“…Kimbrough and Reiss (2012) observe consistent spiteful behavior in a second-price winner-pay auction. Bartling et al (2017) show that subjects' bidding behavior is not driven by spite towards the auctioneer.…”

“…Furthermore, we have treated spite only as a constant, independent of valuation and bid and identical for all members of the population. All these assumptions are taken from the current literature on spite in auctions (Bartling et al, 2017;Morgan et al, 2003;Brandt et al, 2007;Sandholm and Tang, 2012;Sandholm and Sharma, 2010;Mill, 2017) and make the theoretical approach easier and the solutions tractable. Further theoretical work, however, might relax these assumptions.…”

“…Similarly, Brandt et al (2007); Sandholm and Tang (2012); Sandholm and Sharma (2010); Mill (2017) study equilibrium bids with spiteful preferences for winnerpay auctions. Nishimura et al (2011) study spite in common-valuations-auctions and, most recently, Bartling et al (2017) consider equilibria where bidders could have spiteful preferences towards the auctioneer.…”

“…10 Fehr et al (2008) use experiments to show that spiteful behavior is rather wide spread in the least developed parts of India. Kimbrough and Reiss (2012) and Bartling et al (2017) study spite in auctions. Kimbrough and Reiss (2012) observe consistent spiteful behavior in a second-price winner-pay auction.…”

“…Hence, zero is the best choice. 13 SeeBartling et al (2017);Morgan et al (2003);Brandt et al (2007);Sandholm and Tang (2012);Sandholm and Sharma (2010);Mill (2017).…”