Dinah Pura T. Depositario

Comparing Open-Ended Choice Experiments and Experimental Auctions: An Application to Golden Rice

We use two experimental valuation methods to estimate consumer demand for genetically modified golden rice. The first is an open-ended choice experiment (OECE) where participants name the quantities of golden rice and conventional rice demanded at each of several price combinations, one of which will be randomly chosen as binding. This allows us to estimate market demand by aggregating demand across participants. This estimate of market demand also allows us to estimate own-price elasticity and consumer surplus for golden rice. Comparing willingness-to-pay (WTP) estimates from the OECE with those from a uniform-price auction, we find that OECE WTP estimates exhibit less affiliation across rounds, and the effects of positive and negative information under the OECE are more consistent with prior expectations and existing studies. We also find that, while auction WTP estimates more than double across five rounds, OECE WTP estimates are stable across rounds and are always roughly equal to those from the final auction round.

Learning and Possibility of Losing Own Money Reduced Overbidding: Delayed Payment in Experimental Auctions

We designed a delayed payment mechanism in second price auction (SPA) experiments, under which subjects receive a cash endowment two weeks after the experiment day and have to use their own money to pay the experimental loss (if any) on the experiment day. We found that bids are significantly lower with delayed payment of endowment, compared to other payment timing schemes including “on-the-spot” and prepaid payment mechanisms. Furthermore, bids converged to their corresponding induced values as subjects gained experience over repeated auction rounds, suggesting a learning effect and lending support to the role of “bounded rationality” in overbidding in SPAs. We conjecture that under a delayed payment mechanism, the possibility of losing one’s own money promotes learning, which in turn reduces overbidding. To test this hypothesis, we examined how the degree of overbidding is affected by the interaction between loss in the previous auction round and the current number of rounds, which is a proxy for experience. This effect is significantly negative with delayed payment, but not significant under other payment timing schemes. These results suggest that loss of one’s own money in previous rounds triggers learning in SPAs and reduces overbidding. Therefore, a mechanism that makes loss costly and provides subjects with sufficient learning experiences can effectively reduce overbidding in laboratory SPAs.In this study, we designed a delayed payment mechanism in laboratory second price auctions (SPAs) under which subjects received a cash endowment two weeks after the experiment day and had to use their own money to pay the experimental loss (if any) on the experiment day. We compared the effect of delayed payment on overbidding in the induced value SPAs with the conventional “on-the-spot�? payment mechanism when the subjects received an endowment on the experiment day, and the prepaid mechanism when the subjects received the endowment two weeks before the experiment day. Each auction was repeated for 20 rounds to provide sufficient learning opportunities to the bidders. Bids converged to their corresponding induced values as subjects gained experience over repeated auction rounds, implying a possible learning effect and suggesting that “bounded rationality�? contributed to overbidding in SPAs. We found that bids were significantly lower with delayed payment of the endowment, compared to the “on-the-spot�? payment mechanism. Furthermore, in the presence of liquidity constraints, both delayed and prepaid payments reduced overbidding; while in the absence of liquidity constraints, only the delayed payment reduced overbidding. Our results suggest that a mechanism that makes loss truly costly and provides subjects with sufficient learning experiences may effectively reduce overbidding in laboratory SPAs.