Empirical bias and efficiency of alpha-auctions: experimental evidence

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.