Empirical bias and efficiency of alpha-auctions: experimental evidence

TL;DR

This paper experimentally compares winner-bid, average-bid, and loser-bid auctions for partnership dissolution, revealing biases in winner and loser auctions under certain conditions and showing the average-bid auction's distinct bias-free but less efficient performance.

Contribution

It provides empirical evidence supporting theoretical predictions about biases in different alpha-auctions and introduces experimental validation of the empirical equilibrium refinement.

Findings

Winner-bid and loser-bid auctions exhibit bias under weak payoff monotonicity.

Average-bid auction does not show this bias.

Average-bid auction has lower efficiency than winner-bid auction.

Abstract

We experimentally evaluate the comparative performance of the winner-bid, average-bid, and loser-bid auctions for the dissolution of a partnership. The analysis of these auctions based on the empirical equilibrium refinement of Velez and Brown (2020) arXiv:1907.12408 reveals that as long as behavior satisfies weak payoff monotonicity, winner-bid and loser-bid auctions necessarily exhibit a form of bias when empirical distributions of play approximate best responses (Velez and Brown, 2020 arXiv:1905.08234). We find support for both weak payoff monotonicity and the form of bias predicted by the theory for these two auctions. Consistently with the theory, the average-bid auction does not exhibit this form of bias. It has lower efficiency that the winner-bid auction, however.