Abstract
Economics has focused on models of individual rational agents. But many important decisions are made by small groups such as families, management teams, boards of directors, central bank boards, juries, appellate courts, and committees of various types. For example, bid amounts in common value auctions such as the Outer Continental Shelf oil lease auction are typically decided by committees. Previous experimental research with natural groups has found that group bidders are significantly less rational than individual bidders in how they use information in common value auctions. Experiments reported here involve cooperative and non-cooperative nominal groups. The unequal profit-sharing rule applied to non-cooperative nominal groups creates an incentive to free ride within the bidding groups. This incentive to free ride tends to offset the winner’s curse and promote rational bidding.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
References
Capen, E., Clapp, R. & Campbell, W. (1971). “Competitive Bidding in High-Risk Situations,” Journal of Petroleum Technology, 641–53.
Cox, J. & Hayne, S. (2002), “Barking Up the Right Tree: Are Small Groups Rational Agents?”, The Behavioral Economics Conference, Great Barrington, MA, July 19–21.
Dyer, D. & Kagel, J. H. (1996). “Bidding in Common Value Auctions: How the Commercial Construction Industry Corrects for the Winner's Curse,” Management Science, 42(10):1463–1475.
Hoffman, E., Marsden, J. & Saidi, R. (1991). “Are Joint Bidding and Competitive Common Value Auctions Markets Compatible — Some Evidence from Offshore Oil Auctions,” Journal of Environmental Economics and Management, 20: 99–112.
Kagel, J. & Levin, D. (1986). “The Winner's Curse and Public Information in Common Value Auctions,” American Economic Review, 76(5): 894–920.
Kagel, J., Levin, D., Battalio, R. & Meyer, D. (1989). “First-Price Common Value Auctions: Bidder Behavior and the ‘Winner's Curse',” Economic Inquiry, 27: 241–248.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2005 Springer
About this paper
Cite this paper
Cox, J.C., Hayne, S.C. (2005). When Does an Incentive for Free Riding Promote Rational Bidding?. In: Rapoport, A., Zwick, R. (eds) Experimental Business Research. Springer, Boston, MA. https://doi.org/10.1007/0-387-24243-0_7
Download citation
DOI: https://doi.org/10.1007/0-387-24243-0_7
Publisher Name: Springer, Boston, MA
Print ISBN: 978-0-387-24214-9
Online ISBN: 978-0-387-24243-9
eBook Packages: Business and EconomicsBusiness and Management (R0)