Laboratory Testbeds and Nonmarket Valuation: The Case of Bidding Behavior in a Second-price Auction with an Outside Option

ASU Author/Contributor (non-ASU co-authors, if there are any, appear on document)
Todd Cherry Ph.D., Professor (Creator)
Institution
Appalachian State University (ASU )
Web Site: https://library.appstate.edu/

Abstract: Researchers now use the lab to examine the behavioral underpinnings of valuation before the field application which some argue has less experimental control. But lab valuation work raises its own set of concerns when it uses private goods to explore nonmarket valuation behavior because private goods have substitutes often unaccounted for in the lab. Therefore, the lab as a tool to testbed field valuation work may be limited. Herein we design an induced valuation experiment to explore bidding behavior in a second-price auction with an outside option that is a perfect substitute for the auction commodity. Theory predicts that rational bidders will consider the prices of outside options when formulating bidding strategies, and will reduce their bids whenever their resale value exceeds the price of the outside option. Our results suggest that bidders account for outside options, but not to the extent dictated by rational choice theory. In addition, we provide initial evidence concerning hypothetical versus actual behavior with induced values—the data suggest that behavior is similar across real and hypothetical settings.

Additional Information

Publication
Todd L. Cherry, Peter Frykblom, John A. List, Jason F. Shogren & Melonie B. Williams (2004) "Laboratory Testbeds and Nonmarket Valuation: The Case of Bidding Behavior in a Second-price Auction with an Outside Option" Environmental & Resouce Economics Volume 29 Issue 3 Version of Record Available From www.springer.com
Language: English
Date: 2004
Keywords
bidding behavior, experiments, outside option

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