declining values and the afternoon effect evidence from art auctions we study the order of sale in art auctions the final bid relative to the auctioneer s estimated price declines throughout the course of an auction a theoretical model shows that in an auction ordered by declining valuation even in the presence of risk neutral strategic bidders the price received relative to the estimate for later items in an auction should be less than the price relative to the estimate for earlier items furthermore ordering heterogeneous items by value maximizes revenue for the auctioneer

understanding overbidding in second price auctions an experimental study we present results from second price private value auction spa experiments where bidders may receive noisy signals about their opponentsvalue such signals change biddersperception about the strengthof their opponent and the relationship between biddersperception of their opponent and overbidding provides a novel channel to understand overbidding in spa we found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values supporting a modifiedjoy of winninghypothesis but large overbids are more likely to occur when bidders believe their opponents to have much higher values consistent with thespite hypothesis second price private value auctions spas are the most easily understood auction format from a theoretical point of view 1 in standard private value auction models of fully rational bidders with standard preferences bidding one s own value is a weakly dominant strategy this theoretical prediction holds irrespective of biddersrisk atti tudes the number of rival bidders symmetry in the value distributions and so on in laboratory experiments however subjects are found to exhibit a consistent pattern of overbidding kagel et al 1987 found that the actual bids are on average 11 above the dominant strategy bids kagel and levin 1993 found that about 62 of all bids in their five bidder spa sessions exceed the bidder s value while only 8 of all bids were below it both kagel and levin 1993 and harstad 2000 further reported that experience has only a small effect in reducing overbidding in spa an important related finding is that overbidding in english auctions a mechanism that is strategically equivalent to the spa in the case of private values is known to be a short term phenomenon that subjects quickly learn not to undertake kagel and levin 1993 thus any explanation for the prevalence and persistence of overbidding in the spa must also explain its rarity in the english auction given the robustness of the findings of overbidding in spa it is surprising that economists have little understanding of why it happens kagel et al 1987 conjectured that bidding above one s own value in a spa is based on the illusion that it improves the probability of winning with little cost because the winner only pays the second highest bid 2 moreover they argue that overbidding is sustainable because bidders still on average earn positive profits and because the negative feedback from overbidding is a weak mechanism in the spa for example if a bidder overbids in a spa by 10 above her value it is quite possible that she does not win at all and thus does not experience

comparative study of one bid versus two bid auctions abstract the paper focuses on a comparative investigation of the standard one bid first price auction and a corresponding two bid auction where each buyer may place two bids a high bid and a low one and the winner pays his low bid if this was higher than all other bids we characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues for the symmetric case we show that subjects in an experiment prefer the two bid over the one bid auction when given the possibility of choosing between the two and compare the observed behavior to the theoretical predictions

the impact of federal interest rate regulations on the small saver further evidence this paper provides further evidence on the distributional impact of interest rate ceilings on the small saver cross section data from the 1977 consumer credit survey was used to estimate the implicit losses imposed on different income classes by government regulations our findings generally support earlier studies which found the implicit burden to be regressive among income classes however the degree of regressivity showed a marked decrease since 1970 these results may be explained by portfolio adjustments of households and financial innovations in response to deposit rate ceilings and accelerating inflation during the 1970s in a recent paper in this journal clotfelter and lieberman 5 hereafter c l presented evidence of the distributional impact of rate ceilings on deposits in commercial banks and thrift institutions their estimates are based on distributions of households asset holdings in 1963 and show regressivity in the burden of interest losses caused by deposit rate ceilings over the period from 1968 to 1970 since 1963 however households portfolio compositions may have changed as households and financial markets adapted to higher rates of interest and inflation 2 this paper updates c l s estimates using data on financial asset holdings from the 1977 consumer credit survey 3

a theory of collective reputations with applications to the persistence of corruption and to firm quality the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by his past behaviour and because his track record is observed only with noise by the group s past behaviour as well the paper thus studies the joint dynamics of individual and collective reputations and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality 1 collective reputations collective reputations play an important role in economics and the social sciences countries ethnic racial or religious groups are known to be hard working honest corrupt hospitable or belligerent some firms enjoy substantial rents from their reputations for producing high quality products some departments are reported to treat their faculty or students fairly the paper is a first attempt at modelling the idea of group reputation as an aggregate of individual reputations a member s current incentives are affected by her past behaviour and because her track record is observed only with noise by the group s past behaviour as well the paper studies the joint dynamics of individual and collective reputations in a model in which current generations are progressively replaced by new ones and derives the existence of stereotypes from history dependence rather than from a multiplicity of equilibria or from the existence of a common trait as is usually done in the literature see section 2 for a detailed comparison with the literature it shows that new members of an organization may suffer from an original sin of their elders long after the latter are gone and it derives necessary and sufficient conditions under which group reputations can be rebuilt last the paper applies the theory to analyse when a large firm can maintain a reputation for quality let us spell out the building blocks of our theory in more detail a a group s reputation is only as good as that of its members each member is characterized by individual traits such as talent diligence or honesty past individual behaviour conveys information about these traits and generates individual reputations

independent private value auctions bidder behaviour in first second and third price auctions with varying numbers of bidders the symmetric equilibrium of third price auctions is characterized it makes a number of contrasting predictions relative to firms and second price auctions bids exceed private values the marginal effects on bids of an increase in private values is greater than one increasing numbers of bidders reduces bids and risk aversion requires bidding below the risk neutral nash equilibrium in the experiment bidders do not always satisfy the point predictions of the theory however the game theoretic models correctly anticipate at least directionally the important effects of the price rule changes copyright 1993 by royal economic society

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

behavioral models for first price sealed bid auctions with the one shot decision theory abstract we build an auction model with the one shot decision theory which describes the process of a bidder deciding his her bidding price in first price sealed bid auctions the decision making procedure involves two steps first for each of his her possible bidding prices the bidder examines every possible highest bidding price provided by the other bidders and chooses one as a focus point of this bidding price of him her then the bidder determines such a bidding price as the optimal one that generates the best outcome when its focus point occurs the optimal bidding price can be obtained and two common phenomena in auction markets throwing away and overbidding are well explained

the bidder s curse traditional explanations for the popularity of auctions are efficiency and revenue maximization we argue that another reason is the potential for overbidding i e buyers bidding above their willingness to pay outside the auction the auction mechanism ensures that even if only few buyers overbid they affect prices and allocations we employ a novel approach to identify overbidding in the field comparing auction prices to simultaneous fixed prices for identical items on the same ebay webpage we argue that fixed prices provide an upper bound for auction bids in a detailed data set of board game auctions we find that the final price exceeds the simultaneous fixed price in 42 percent of the auctions the result is not explained by differences in item quality shipping costs or seller reputation prior auction experience does not eliminate overbidding the finding replicates in a second broad data set of a cross section of auctions 48 percent overbidding the substantial fraction of overbid auctions is induced by a small number of bidders only 17 percent ever bid above the fixed price using a simple model of second price auctions with alternative fixed prices we show that transaction costs of switching between auctions and fixed prices cannot explain the results given that even the expected auction price is higher than the fixed price consistent with limited attention the closer the fixed price is listed relative to an auction the less likely are overbids this effect is strongest for bidders first bids when they are likely to examine the auction and fixed price listings more closely

explicating factors for companies inclination towards corruption in operations and supply chain management an exploratory study in germany abstract the literature on corruption is rich in works focusing on individual and organizational aspects however existing research is void in studies that specifically deal with factors for a company s inclination towards corruption in operations and supply chain management the present paper fills this gap by explicating why some firms are more prone to corruption than others within this context it is our objective to explore the structural and organizational bases for companies especially their purchasing units to engage in corrupt business practices grounding our work in principal agent theory and the fraud triangle we suggest that the factors of organizational complexity corporate culture internationality and functional complexity all influence a firm s inclination towards corruption which in turn should manifest itself in the presence or absence of corruption control and prevention mechanisms this framework is tested with data collected from 104 purchasing managers in germany and implications for both theory and practice are highlighted

revisiting risk aversion can risk preferences change with experience abstract the holt laury measure for risk aversion has been used extensively in economic studies to measure individuals risk aversion the idea behind this measure is that individuals have stable risk preferences when making decisions under risk we show that having repeated experiences with the holt laury task can move individuals from exhibiting risk aversion to displaying risk neutrality this finding suggests that either risk preferences are not robust to a few experiences or that responses to the tasks indicate something else we show that a simple model of adaptation can capture this behavioral pattern

auctions with anticipated regret theory and experiment this paper demonstrates theoretically and experimentally that in first price auctions overbidding with respect to the risk neutral nash equilibrium might be driven from anticipated loser regret felt when bidders lose at an affordable price different information structures are created to elicit regret bidders know they will learn the winning bid if they lose loser regret condition or the second highest bid if they win winner regret condition or they will receive no feedback regarding the other bids bidders in loser regret condition anticipated regret and significantly overbid however bidders in the winner regret condition did not anticipate regret jel d44

corruption and competition in procurement abstract we consider a procurement problem in which the procurement agent is supposed to allocate the realization of a project according to a competitive mechanism that values bids in terms of the proposed price and quality potential bidders have private information about their production costs since the procurement agent is also in charge of verifying delivered quality in exchange for a bribe he can allow an arbitrary firm to be awarded the realization of the project and to produce a quality level lower than that announced we compute equilibrium corruption and we study the impact on corruption of the competitiveness of the environment and in particular of i an increase in the number of potential suppliers of the good or service to be procured and ii an increase of competition in the market for procurement agents we identify the effects that influence equilibrium corruption and show that contrary to conventional wisdom corruption may well be increasing in competition

post objective determination of weights of the evaluation factors in public procurement tenders in public procurement tenders the awarding criterion of the most economically advantageous bid employs weights to aggregate the numerical scores assigned to each proposal with respect to different evaluation factors typically these weights are fixed and subjectively set in advance methods which objectively determine the weights after the opening of the sealed bids on the basis of the most or least favorable weights for each proposal are developed post objective methods of weight determination are shown to enhance the integrity of the evaluation process and to limit corruption in a public tender the connection of data envelopment analysis which has been extensively applied to measure supplier efficiency with the developed methods is explored average least and most favorable weights are derived and optimal bidding strategies in this setting are presented

bidding in private value auctions with uncertain values abstract auctions are often used to sell idiosyncratic goods difficult for potential bidders to value ex ante laboratory auctions with uncertainty over final values in this experiment resulted in 18 and 27 of bids above the expected value of the item in private value first price and english auctions respectively risk seeking preferences as measured on an individual decision task cannot explain overbidding and the first price auction results suggest that risk aversion may not be a good explanation for bidding behavior observed with certain values several candidate explanations fail to explain overbidding rather it appears to stem from some bidders who are prone to overbidding relative to first price auctions the size and frequency of overbids are significantly larger in english auctions while more english auctions are won by overbidders differences between the formats appear to be driven by the dynamic nature of english auctions which is consistent with popular notions of auction fever

phantom bidding against heterogeneous bidders abstract if ipv bidders are distributionally heterogeneous then a revenue maximizing english auctioneer will in general find it optimal to use a non constant reserve price that is a function of the observed bid sequence an example is provided

modeling competitive bidding a critical essay in analyzing bidding modeling matters this paper is a critical analysis of the models available to aid competitive bidding decision making bidding strategy and auction design in real transactions after an introductory overview this paper describes the contexts in which auctions arise reviews the mainstream theory of single isolated auctions and discusses the important work involved in enrichment of this theory in doing so it indicates results that have been obtained and the sort of changes in analytical approach that are needed to tackle other critical enrichments the paper summarizes briefly what is known about the direct use of models by bidders and auction designers a general theme of this paper is that enriched models are needed to bring bidding theory closer to direct applicability in decision making

the distributional impact of foreign deposits on federal deposit insurance premia abstract rapid growth of deposits in u s foreign bank branches and current u s government policies have combined to create a new inequality in the deposit insurance system our research shows that smaller banks are substantially subsidizing the insurance costs of the larger multinational institutions when insurance premiums are viewed in the context of an implicit tax it is highly regressive with the wealth transfer growing over time recent reform proposals do not fully address important international influences and therefore underestimate the scope of the problem

coherent arbitrariness stable demand curves without stable preferences economic theories of valuation generally assume that prices of commodities and assets are derived from underlying fundamental values for example in finance theory asset prices are believed to reflect the market estimate of the discounted present value of the asset s payoff stream in labor theory the supply of labor is established by the tradeoff between the desire for consumption and the displeasure of work finally and most importantly for this chapter consumer microeconomics assumes that the demand curves for consumer products chocolates cds movies vacations drugs and so forth can be ultimately traced to the valuation of pleasures that consumers anticipate receiving from these products because it is difficult as a rule to measure fundamental values directly empirical tests of economic theory typically examine whether the effects of changes in circumstances on valuations are consistent with theoretical prediction for example whether labor supply responds appropriately to a change in the wage rate whether compensated demand curves for commodities are downward sloping or whether stock prices respond in the predicted way to share repurchases however such comparative static relationships are a necessary but not sufficient condition for fundamental valuation e g summers 1986 becker 1962 was perhaps the first to make this point explicitly when he observed that consumers choosing commodity bundles randomly from their budget set would nevertheless produce downward sloping demand curves

the impact of banking and fringe banking regulation on the number of unbanked americans thirty five to 45 percent of low income american households do not possess a bank account this statistic coupled with claims of price gouging by check cashers has prompted government intervention i find that state legislation requiring banks to offer low cost accounts slightly decreases the number of low income minority unbanked households but only with a substantial lag caps on check cashing fees also lead to a small but more immediate reduction in the number of unbanked among this population because price caps may lead to a reduction in supply welfare effects are indeterminate

theory and misbehavior of first price auctions recent experimental evidence appears to reject simple nash equilibrium models of bidding behavior in first price auctions the author presents a methodological critique of this evidence existing tests have concentrated on deviations of subjects from predictions in the message space of the action bid deviations the author suggests that it is more natural to evaluate subject behavior in expected payoff space he concludes that the evidence against the simple models is not significant enough to warrant their rejection copyright 1989 by american economic association