2000 Fiscal Year Final Research Report Summary
A Break-Down of the Revenue-Equivalence Theorem of Auctions : Theoretical and Experimental Approach
| Project/Area Number |
11630006
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
経済理論
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| Research Institution | Shinshu University |
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Principal Investigator |
YAMAMOTO-NISHIMURA Naoko (西村 直子) Faculty of Economics, Shinshu University Associate Professor, 経済学部, 助教授 (30218200)
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| Project Period (FY) |
1999 – 2000
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| Keywords | Auction / Revenue Equivalence Theorem / Allais Paradox / Non-Expected Utility / Experiment / Risk |
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| Research Abstract |
In an independent private value (IPV) setting, we investigate the relation between the nature of individual preference and the bidding behavior in an English auction and in a second-price auction, theoretically as well as experimentally. These two auction forms are equivalent under the expected utility. We derive the Nash equilibrium bidding strategies for bidders with smooth non-expected utility preferences under these two auction forms for a risky auctioned object. Under the Hypothesis II by Machina (1982), a sufficient condition for the Allais type, we show that the equilibrium revenue under the second-price auction is lower than the English auction. When we narrow down the set of preferences to betweenness-conforming preferences, weak behavioral conditions that are more empirically validated can implement the higher equilibrium revenue in English auction.
Based upon our theoretical analysis, we introduce a preference experiment additionally to auction experiment. We classify bidders
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in terms of whether they exhibit the expected utility or Allais type choice patterns. Conditional bid data on the expected utility type bidders support the conventional equivalence. Whereas, conditional on the Allais type bidders, the bid difference between the two kinds of auctions remain insignificant for a deterministic auctioned object, but the bids for the English auction are significantly higher than for the second-price auction, when the auctioned object is risky. These findings are consistent with our theoretical analysis.
In a similar manner, we investigate the relation between the Dutch auction and the first-price auction. Unlike the expected utility type, the conditional data on the Allis type bidders show significantly lower Dutch bids, which is contrary to our theoretical result. This conflicting result may be attributed to the Hypothesis II being only sufficient condition for the Allais type. This prompts a further investigation for a better characterization of the Allais type choice behavior, as a future research. Less
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