Workshop on Auctions & Bargaining

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Organizers: José Luis Moraga-González, Sander Onderstal

View full program here.

Invited speakers

Antonio Cabrales (University College London)
Ángel Hernando Veciana (Durham University Business School),
Elena Katok (The University of Texas at Dallas)
Peter Katuščák (RWTH Aachen University)
Sebastian Schweighofer-Kodritsch (Humboldt University of Berlin),
Gyula Seres (Humboldt University of Berlin)
Shaul Shalvi (University of Amsterdam)
Alfred Zerres (University of Amsterdam)

Abstracts

Antonio Cabrales (University College London)
Does Pre-play Social Interaction Improve Negotiation Outcomes?

We study experimentally the impact of pre-play social interactions on negotiations. These interactions are often complex. Thus, we attempt to isolate the impact of several of its morecommon components: conversations, food, and beverages, which could be alcoholic or nonalcoholic. To do this, our subjects take part in a standardized negotiation (complex and simple) under six conditions: without interaction, interaction only, and interactions with water, wine, water and food and wine and food. We find that none of the treatments improve the outcomesover the treatment without interactions. We also study trust and reciprocity in the same context. For all-male groups, we find the same lack of superiority of interaction treatments over nointeraction. For all-female groups, some very simple social interactions have a positive impact on trust.

Gyula Seres (Humboldt University of Berlin)
Strategic Anchoring: An Experimental Test in Auctions

Anchoring is a widely observed cognitive bias triggered by an obviously irrelevant number that influences judgement. Following this line line of research, we focus on anchoring effects on strategies. In some markets including bargaining and auctions, agents are exposed to potential anchors which limit the strategy space, but do not convey information. We test for the presence of anchoring in games with an experiment in private-value first-price and silent Dutch auctions. Subjects are exposed to two anchors. For one, some treatments include a very high upper limit of bids. For two, subjects may receive a randomly allotted number before the auctions. We find evidence of anchoring bias of both types. Moreover, the interaction effects are negative, suggesting that different type of anchors weaken each other. We also find that the sign of the effect of the upper limit is context dependent as it is negative and significant in silent Dutch auctions.
Co-authored with Radosveta Ivanova-Stenzel.

Elena Katok (The University of Texas at Dallas)
Does Supplier Competition Boost Investment Incentives? An Experimental Study

In procurement settings suppliers are able to use cost saving measures prior to bidding on projects. To the extent that these measures affect bidders’ costs distributions, they also affect optimal reservation prices buyers should set in equilibrium. Therefore, in theory whether the cost saving effort is observable to buyers affects reservation prices, which in turn affect the levels of cost saving efforts. We test predictions of this model in the laboratory and find that suppliers cost saving efforts are higher than they should be in equilibrium, reservation prices are less responsive to observable cost saving effort levels, and in competitive settings cost saving effort levels go beyond what can be explained by reservation prices.
Joint work with Cuihong Li and Zhixi Wen.

Peter Katuščák (RWTH Aachen University)
Strategy-proofness Made SimplerThere is a growing evidence that many people do not report their preferences truthfully in strategy-proof mechanisms. As examples, consider student-school matching under a strategy-proof mechanism or the second-price auction. A leading explanation of this observation are cognitive limitations of players. We propose a novel way of framing any strategy-proof mechanism that aims to reduce the ensuing cognitive load on players. First, a player's reported type is used to determine opportunity sets of the other players, whereas reported types of the other players are used to determine the opportunity set of the player in question. Second, a player's private allocation is determined as (one of) the most preferred allocation(s) in her opportunity set according to her reported preference type. We then experimentally test whether this framing increases truthful reporting relative to ``traditional'' frames using top trading cycles. We find that the proposed framing increases the rate of truthful reporting by almost one half. Moreover, there is no effect for low numeracy subjects, whereas the rate of truthful reporting more than doubles for high-numeracy subjects.

Joint work with Thomas Kittsteiner.

Sebastian Schweighofer-Kodritsch (Humboldt University of Berlin)
Obviousness Around the Cloc
Li (2017) supports his theoretical notion of obviousness of a dominant strategy with experimental evidence that bidding is closer to dominance in the dynamic ascending-clock than the static second-price auction (private values). We replicate his experimental study and add three intermediate auction formats to decompose this behavioral improvement into cumulative effects of (1) seeing an ascending-price clock (after bid submission), (2) bidding dynamically on the clock and (3) getting (theoretically irrelevant) drop-out information. Li’s theory predicts dominance to become obvious through (2) dynamic bidding, which should therefore significantly affect behavior. We find no significant behavioral effect of (2), however, while the feedback effects (1) and (3) are highly significant. We conclude that behavioral differences between second-price and ascending-clock auctions offer rather limited support for the theory of obviousness and that framing may be considered a key aspect of mechanism design.

Shaul Shalvi (University of Amsterdam)
Precision In Context Theory: In A Seller’s Market, Precise Prices Are Suboptimal
Precise, compared with round asking-prices, are stronger anchors, leading to counteroffers and final agreements that are closer to the asking-price. Consequently, a popular advice for sellers is to set precise asking-prices. We propose a Precision-in-Context Theory: for sellers who wish the maximize profit, precise asking-prices are beneficial in a buyer’s market, in which buyers counter below the asking-price, but detrimental in a seller’s market, in which buyers counter above the asking-price. Four pre-registered experiments (N=4,078) support the Precision-in-Context theory, showing that in a seller’s market, precise asking-prices lead to lower counteroffers. The effect is driven by buyers’ use of a finer-grained pricing scale when countering precise asking-prices. Analyzing Amsterdam’s 2017 real estate transactions (N=5,713), in which 70% of the properties were sold above the asking-price, revealed that increasing the roundness of the asking-price by one decimal was associated with an increase of 0.6% in the selling-price, equivalent to €2,099 on average.

Ángel Hernando Veciana (Durham University Business School)
Multi-unit Bargaining and Posted Prices

We study two-person bargaining over multiple homogeneous items when both agents have private information about their preferences and monetary transfers are possible. Our main result is that every mechanism that sat- isfies (i) dominant-strategy incentive compatibility, (ii) ex-post individual rationality and (iii) ex-post budget balance or ex-post collusion proofness can be implemented almost everywhere by posted prices. Hence, strategic robustness rules out any endogenous price formation. We also apply our re- sults to discuss the welfare consequences of requiring ex-post budget balance instead of ex-post collusion proofness.
Joint work with Martin Hagen.

Alfred Zerres (University of Amsterdam)
Visual self-presentation in negotiation
Latest since John T. Molloys bestselling book “Dress for success” professionals all over the world hold diverse (and often strong) believes about how one should (not) dress for business – and particularly negotiation. Interestingly, despite diverse self-proclaimed “wardrobe engineers” offer detailed advice on how to self-present for successful deal-making, scientific research has largely ignored this question so far. With this research program, we aim at filling this gap by investigating the dynamics of a series of clothing choices on negotiation processes and outcomes.