An experimental analysis of auction theory

The dissertation examines modern auction theory using experimental economics as a research tool. Auctions provide a clear view of actual price formation, while the laboratory setting enables us to isolate specific economic forces under controlled conditions. The first essay provides empirical evidence on the theoretical prediction that uncertainty regarding the number of bidders is important. As predicted for buyers with constant or decreasing absolute risk aversion, resolving numbers uncertainty decreases seller's revenues. We conclude however that risk aversion, at least in the context of von Neuman-Morganstern expected utility theory, cannot explain our empirical findings. The second essay provides evidence as to the validity of experimental methods as a research tool in economics. Results using experienced construction contractors do not differ significantly from results using student subjects in common value auction experiments, as the winner's curse is found to generalize across auction form, market size, and subject population.