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Unpublished Paper
Fear of Losing in Dynamic Auctions: An Experimental Study
Working Paper, University of Maryland (2009)
  • Peter Cramton, University of Maryland
  • Emel Filiz-Ozbay, University of Maryland
  • Erkut Ozbay, University of Maryland
  • Pacharasut Sujarittanonta, University of Maryland

We analyze the implications of different pricing rules in discrete clock auctions. The two most common pricing rules are highest-rejected bid (HRB) and lowest-accepted bid (LAB). Under HRB, the winners pay the lowest price that clears the market; under LAB, the winners pay the highest price that clears the market. This pricing difference creates stronger incentives for bid shading under LAB. When bidders seek to maximize profits, the HRB auction maximizes revenues and is fully efficient. The bid shading under LAB means that a bidder may regret losing. Bidders that anticipate this regret may limit bid shading, causing the LAB auction to achieve higher revenues than the HRB auction. Our experiments confirm that this is the case. The LAB auction achieves higher revenues. This also is the case in a version of the clock auction with provisional winners that is commonly used in spectrum auctions. This revenue result may explain the frequent use of LAB pricing despite the efficiency and simplicity advantages of HRB pricing.

  • clock auctions,
  • pricing rule,
  • market design,
  • experiments,
  • fear of losing,
  • regret,
  • reference dependent
Publication Date
July, 2009
Citation Information
Peter Cramton, Emel Filiz-Ozbay, Erkut Ozbay and Pacharasut Sujarittanonta. "Fear of Losing in Dynamic Auctions: An Experimental Study" Working Paper, University of Maryland (2009)
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