Learning through simultaneous play: evidence from penny auctions
Journal of Economics and Management Strategy
Reason for embargo
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.
Financial support from Fundação para a Ciência e Tecnologia (through project PEst-OE/EGE/UI0731/2011) is gratefully acknowledged.
This is the author accepted manuscript. The final version is available from the publisher via the DOI in this record.
Vol. 25, pp. 1040 - 1059