The Common-Probability Auction Puzzle

M. Kathleen Ngangoué, Andrew Schotter

    Research output: Contribution to journalArticlepeer-review


    This paper presents a puzzle in the behavior of experimental subjects in what we call common-probability auctions. In common-value auctions, uncertainty is defined over values, while in common-probability auctions, uncertainty is defined over probabilities. We find that in contrast to the substantial overbidding found in common-value auctions, bidding in strategically equivalent common-probability auctions is consistent with Nash equilibrium. To explain our results, we run treatments to identify whether this difference stems from the way subjects estimate the good’s value in a competitive environment rather than the way they bid conditional on these valuations. We conclude it is the former.

    Original languageEnglish (US)
    Pages (from-to)1572-1599
    Number of pages28
    JournalAmerican Economic Review
    Issue number6
    StatePublished - Jun 2023

    ASJC Scopus subject areas

    • Economics and Econometrics


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