Centre for Development Economics
Department of Economics, Delhi School of Economics


Vickery auction given interval values and bids


Prasenjit Banerjee

University of Manchester

Thursday, 23rd January 2014 at 3:00 PM

Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics

All are cordially invited


Rational choice theory presumes people have a point estimate of their value for a good and service, and they can translate this value into a single monetary willingness to pay (WTP) statement. In contrast, work in behavioral economics has challenged this idea of a precise point estimate with a psychological notion codified as coherent arbitrariness (Ariely et al., 2003). Coherent arbitrariness suggests it is more likely that people have a range of acceptable values, such that asking for one single point estimate of WTP could well be biased due to the person anchoring on some arbitrary cue.  Their speculation on the question of point versus interval values matters for work on non-market valuation that elicits preferences for, say endangered species protection or water quality.  A typical preference elicitation survey asks people to state their preferences for non-market goods presumes people have a well-formed point estimate of value. 

In this paper, we address the research question whether it is incentive compatible for a person to express her WTP pay in point estimate when she has a range of acceptable values. We step back into the lab to control for preferences using an induced value design and to control for sincere bidding by using a classic Vickrey second-price auction. We follow the tradition of using experimental auctions that use demand-revealing (in theory) exchange institution for market goods and non-market environmental goods. Our experiment test how do bidders bid if they have an interval value and they state an interval bid?  Assuming risk neutrality, we have two symmetric equilibria – (1) bid in interval equating the expectation of the interval bid with the induced value; and (2) bid in point equal to the expected interval value. Our bidders bid sincerely—even with interval values—as measured by equality in the expected values of the bid and value intervals. Our results suggest using interval bidding procedures in the field of non-market valuation settings might be viable.


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