Sophisticated Bidders in Beauty-Contest Auctons

Stefano Galavotti (1) , Luigi Moretti (2) , Paola Valbonesi (1)

1 Unipd - Università degli Studi di Padova = University of Padua
2 CES - Centre d'économie de la Sorbonne

We study bidding behavior by firms in beauty-contest auctions, i.e. auctions in which the winning bid is the one which gets closet to some function (average) of all submitted bids. Using a dataset on public procurement beauty-contest auctions, we show that firms' observed bidding behavior departs from equilibrium and can be predicted by a sophistication index, which captures the firms' accumulated capacity of bidding close to optimality in the past. We show that our empirical evidence is consistent with a Cognitive Hierarchy model of bidders' behavior. We also investigate whether and how firms learn to bid strategically through experience.

Mots clés: cognitive hierarchy; auctions; beauty-contest; public procurement

Domaines: Economies et finances

Stefano Galavotti, Luigi Moretti, Paola Valbonesi. Sophisticated Bidders in Beauty-Contest Auctons. 2017. ⟨halshs-01440891⟩