Experimental Work on Auctions
Professors John H. Kagel and Dan Levin have been working on auctions since they first met in 1982 at the University of Houston. Dan joined the OSU faculty in 1995 and was reunited with John who joined OSU in 1999 from the University of Pittsburgh. Their over 20 years' research program on auctions employed both theoretical and experimental methods. Here we just highlight a few of the main issues explored, point out main accomplishments and provide links for the interested reader.
Common-value auctions are particular kind of auctions where bidders have different private estimates for the common-value, say, a mineral right license that is auctioned. Their first major project on common-value auctions and the winner's curse (WC) phenomenon associated with it was the first experiment that produced massive WC losses in a formal first-price auction with incomplete information (American Economic Review, 1986). Issues explored in this project were: Are bidders learning to avoid the WC trap? What kind of learning is it (if they do)? How does the release of public information affect bidding in environments where bidders suffer the WC? In another project Kagel and Levin explored similar issues in an ascending price English auction (American Economic Review, 1996) and how having an insider (a bidder with superior information) affects bidding in common-value auctions (Econometrica, 1999). Their first major work on Private-Value auctions (Econometrica, 1987), where each bidder knows with certainty his/her own value but not the valuations of the other bidders, explored bidding differences between sealed-bid auctions and the equivalent English auction and tested predictions stemming from the linkage principle regarding public information. Much of their findings about private-value auctions is summarized in their study comparing behavior in first-, second-, and third-price auctions (Economic Journal, 1993). More recently they have worked on auctions with multiple unit demands where they explored demand-reduction issues (Econometrica, 2001) and the effects of synergies on bidder behavior (Games and Economic Behavior, in press).
Kagel and Levin's work was funded by NSF grants almost continuously since 1984 and both have served at different points of time on the NSF panel. They continue to work in auctions both together and separately with other collaborators.
John Kagel with Alvin Roth edited the Handbook of Experimental Economics, (Princeton University Press 1995) in which John also contributed a survey paper reviewing experimental work on auctions.
More recently, Kagel and Levin's most important papers on auctions were republished in Common Value Auctions and the Winner's Curse (Princeton University Press, 2002) As part of the collection they provide a new, updated survey on work in common value auctions. They also report several short, previously unpublished studies and provide a retrospective look at the work and the factors motivating the different studies.
To get more familiar with their work past and present visit their respective web sites: John Kagel and Dan Levin. Lixin Ye joined the OSU faculty in 2002 from Stanford University where he worked under the direction of Paul Milgrom and Robert Wilson. He has recently employed experiments to test various some of the bidding models he has been working on. He is currently working with John Kagel and Svetlana Pevnitskaya on two projects, survival auctions and indicative bidding. In the first project, they experimentally explore the equivalence between a survival auction and an English ascending bid auction. In the second project, they investigate the efficiency of a selling mechanism commonly used in complex and high-value asset sales.