LEARNING IN COMMON VALUE AUCTIONS - SOME INITIAL OBSERVATIONS

Inexperienced bidders in first-price common value auctions suffer from a winner's curse - losing money on average. With experience bidders approximate the Nash equilibrium. The mechanisms underlying this adjustment are (1) a market selection effect as the most aggressive bidders are less likely to return for subsequent sessions and (2) players who lose money bid less (experiential learning) and those who would have lost money had they won the auction with the high bidder's signal bid less (observational learning).