A Comment on “Can Relaxation of Beliefs Rationalize the Winner's Curse?: An Experimental Study”

Abstract

Ivanov, Levin, and Niederle (2010) use a common-value second-price auction experiment to reject beliefs-based explanations for the winner's curse. ILN's conclusion however stems from the misuse of theoretical arguments. Beliefsbased models are even compatible with some observations from ILN's experiment. * We thank Asen Ivanov and Muriel Niederle for sharing their data with us, and Asen Ivanov for providing a working paper version of the article and answering clarification questions. We thank the co-editor and anonymous referees for their thoughtful comments and suggestions which have improved the manuscript substantially. We thank Francesco Bravo, Nick Feltovich, Ron Harstad, Nagore Iriberri, Dan Knoepfle, John Nachbar, Tatsuyoshi Okimoto, Joel Sobel, and especially Vincent Crawford for advice and comments. We also thank the audience at the 2011 BIC Microeconomic

The winner's curse: Conditional reasoning and belief formation

“…Our analysis focusses mainly on the six games in boldface. Costa-Gomes and Shimoji, 2015). While our manipulation clearly provides subjects with a basic scenario, the idea that this scenario helps subjects to play against humans rests on the assertion that the computer scenario is simple enough for subjects to gain a better understanding of the game which in turn should improve bids against humans.…”

Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour

“…Surprisingly, however, the existing literature provides little insight into the predictive performance of level-k and whether it can outperform the natural benchmark of Bayes-Nash equilibrium. There is some evidence that the level-k model might be able to explain the 'winner's curse' in common value auctions (Crawford and Iriberri, 2007;Costa-Gomes and Shimoji, 2015); but also evidence that it might do so for the wrong reasons (Ivanov et al, 2010). In addition, there does not appear to be any serious comparison of level-k and equilibrium in the rather simpler independent private setting (IPV) that forms the starting point for most auctions research.…”