Does displaying probabilities affect bidding in first-price auctions?

Abstract

“Overbidding” with respect to risk-neutral Nash predictions in first-price auction experiments has been consistently reported in the literature. One possible explanation for overbidding is that participants in these experiments do not have a clear perception of probabilities, which causes them to bid aggressively. We test whether displaying probabilities of winning produces systematic differences in bidding. In our design, previous auction outcomes are not revealed across treatments; no significant differences in behavior across treatments are obtained. Our results are in contrast to previous experiments, which suggest that displaying probabilities could reduce the extent of overbidding.