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A New Variant of the Winner's Curse in a Coasian Contracting Game

Published online by Cambridge University Press:  14 March 2025

Glen Archibald  and
Nathaniel T. Wilcox
Glen Archibald
Affiliation:
Department of Economics and Finance, University of Mississippi, MS 38677
Nathaniel T. Wilcox*
Affiliation:
Department of Economics, University of Houston, Houston. TX 77204
*
email: nwilcox@mail.uh.edu
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Abstract

We examine behavior in a Coasian contracting game with incomplete information. Experimental subjects propose contracts, while automaton property right holders or “robot” players with uncertain preferences respond to those proposals. The most common pattern of proposals observed in these games results in too many agreements and, in some games, payoffs that are stochastically dominated by those resulting from rational proposals (which imply fewer agreements). In this sense, we observe a “winner's curse” similar to that observed in bidding games under incomplete information, such as the “common value auction” (Kagel, J.H. and Levin, D. (1986) American Economic Review. 76, 894-920) and the “takeover game” (Samuelson, W. and Bazerman, M.H. (1985) In Research in Experimental Economics, Vol. 3. JAI Press, Greenwich, pp. 105-137; Ball, S.B., Bazerman, M.H., and Carroll, J.S. (1990) Organizational Behavior and Human Decision Processes. 48, 1-22; Holt, C. and Sherman, R. (1994) American Economic Review. 84, 642-652). While the “naïve model” of behavior nicely predicts the winner's curse in those previous bidding games, it does not do so here. Instead, an alternative model we call the “guarantor model” explains the anomalous behavior best. Hence, we suggest this is a new variant of the winner's curse.

Keywords

incomplete informationCoasian bargainingwinner's curse

JEL classification

C9: Design of Experiments C72: Noncooperative Games D82: Asymmetric and Private Information • Mechanism Design
Type
Research Article
Information
Experimental Economics , Volume 5 , Issue 2 , October 2002 , pp. 155 - 172
Copyright
Copyright © 2002 Economic Science Association

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Footnotes

*

To whom correspondence should be addressed.

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