The Common-Probability Auction Puzzler

This paper presents a puzzle in the behavior of experimental subjects in what we call common-probability auctions. In common-value auc-tions, uncertainty is defined over values, while in common-probability auctions, uncertainty is defined over probabilities. We find that in contrast to the substantial overbidding found in common-value auc-tions, bidding in strategically equivalent common-probability auc-tions is consistent with Nash equilibrium. To explain our results, we run treatments to identify whether this difference stems from the way subjects estimate the good's value in a competitive environment rather than the way they bid conditional on these valuations. We con-clude it is the former. (JEL C70, C90, D44, D81)