Learning through simultaneous play: evidence from Penny Auctions

Ricardo Gonçalves, Miguel A. Fonseca

Research output: Contribution to journalArticlepeer-review

Abstract

This paper contributes to the emerging empirical literature on penny auctions, a particular type of all-pay auctions. We focus on the potential learning effects that bidders may experience over time but also (and particularly) across auctions as a result of their auction participation. Using detailed bid-level information, we find that, similarly to earlier literature, bidders suffer from a sunk cost fallacy, whereby their probability of dropping out of an auction is decreasing in the number of bids they have already placed in that auction. Although we do find that learning through repeated participation alleviates the sunk cost fallacy, participation in simultaneous penny auctions emerges as a much more effective learning mechanism, ultimately contributing toward bidders earning higher individual surpluses.
Original languageEnglish
Pages (from-to)1040-1059
Number of pages20
JournalJournal of Economics and Management Strategy
Volume25
Issue number4
DOIs
Publication statusPublished - 1 Dec 2016

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