nep-gth New Economics Papers
on Game Theory
Issue of 2006‒02‒12
four papers chosen by
Laszlo A. Koczy
Universiteit Maastricht

  1. Understanding Overbidding in Second Price Auctions: An Experimental Study By David J. Cooper; Hanming Fang
  2. A Comment on "Sequential Equilibria" By Peter A. Streufert
  3. Price formation in a sequential selling mechanism By Radosveta Ivanova-Stenzel; Sabine Kröger
  4. Social Sanctions in Interethnic Relations: The Benefit of Punishing your Friends By Christian Stoff

  1. By: David J. Cooper (Dept. of Economics, Weatherhead School of Management, Case Wester Reserve University); Hanming Fang (Dept. of Economics and Cowles Foundation, Yale University)
    Abstract: This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents' value. Even though theoretically such information about opponents' value has no strategic use in the SPA, it provides us with a convenient instrument to change bidders' perception about the "strength" (i.e., the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders' perception of the strength of their opponent provides the key to understand whether overbidding in second price auctions are driven by "spite" motives or by the "joy of winning." The experimental data show that bidders are much more likely to overbid, though less likely to submit large overbid, when they perceive their rivals to have similar values as their own. We argue that this empirical relationship is more consistent with a modified "joy of winning" hypothesis than with the "spite" hypothesis. However, neither of the non-standard preference explanations are able to fully explain all aspects of the experimental data, and we argue for the important role of bounded rationality. We also find that bidder heterogeneity plays an important role in explaining their bidding behavior.
    Keywords: Overbidding, Second price auctions, Spite, Joy of winning, Bounded rationality
    JEL: C91 C72
    Date: 2006–01
  2. By: Peter A. Streufert (University of Western Ontario)
    Abstract: Not available.
    Date: 2006
  3. By: Radosveta Ivanova-Stenzel (Department of Economics, Spandauer Str. 1, D-10178 Berlin, Germany.; Sabine Kröger (Université Laval, Département d’économique, Pavillon J.A.DeSève, Québec city, Québec, G1K 7P4 Canada.
    Abstract: This paper analyzes the trade of an indivisible good within a two-stage mechanism, where a seller first negotiates with one potential buyer about the price of the good. If the negotiation fails to produce a sale, a second–price sealed–bid auction with an additional buyer is conducted. The theoretical model predicts that with risk neutral agents all sales take place in the auction rendering the negotiation prior to the auction obsolete. An experimental test of the model provides evidence that average prices and profits are quite precisely predicted by the theoretical benchmark. However, a significant large amount of sales occurs already during the negotiation stage. We show that risk preferences can theoretically account for the existence of sales during the negotiation stage, improve the fit for buyers’ behavior, but is not sufficient to explain sellers’ decisions. We discuss other behavioral explanations that could account for the observed deviations.
    Keywords: auction, negotiation, combined mechanism, sequential mechanism, risk preferences, experiment
    JEL: C72 C91 D44 D82
    Date: 2005–10
  4. By: Christian Stoff (Socioeconomic Institute, University of Zurich)
    Abstract: We analyse interethnic cooperation in an infinitely repeated prisoner’s dilemma when members of one group are unable to target punishment towards individual defectors from the other group. We first show that indiscriminate punishment may sustain cooperation in this setting. Our main result, however, is that the introduction of ingroup punishment in addition to outgroup punishment represents a better sanctioning institution in the sense that cooperative outcomes may persist in situations where outgroup punishment alone fails to induce cooperation. Our findings are consistent with historical evidence on the dynamics of interethnic conflicts.
    Keywords: conflicts, interethnic cooperation, ethnicity, intergroup relations, ingroup punishment, outgroup punishment
    JEL: C70 C72 O12 O17 Z13
    Date: 2004–12

This nep-gth issue is ©2006 by Laszlo A. Koczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.