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Welcome to SSEL. Welcome to the SSEL Lab, and thank you for participating in today’s experiment.
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Welcome to SSEL Welcome to the SSEL Lab, and thank you for participating in today’s experiment. It is very important that you do not touch the computer until you are instructed to do so. And when you are told to use the computer, use it only as instructed. In particular, do not attempt to browse the web or do other things unrelated to the experiment. There should be a pencil in the envelope you received. Place all of your personal belongings away, so we can have your complete attention.
The Experiment The experiment you will be participating in today is an experiment in decision making. At the end of the experiment you will be paid for your participation in cash. Each of you may earn different amounts. The amount you earn depends on your decisions, chance, and the decisions of other participants. Please DO NOT socialize or talk during the experiment. We will go over the instructions slowly. It is important you follow. When you have a question please raise your hand and one of us will come to you to answer it in PRIVATE.
The Experiment We will run at most 20 auctions. In each auction you are in a group with 3 other bidders. The four of you will compete for a single prize of unknown value as explained next.
Information A bidder’s value for the prize consists of 2 components: bidder’s value = personal value + bonus Each bidder will know their own personal value for the prize. In addition, we will select at random one bidder in your group who will get to know the bonus. This bidder will be called the “informed bidder”. The other three bidders in your group will not get to know the bonus. These three bidders will be called “uninformed bidders”.
Bidder’s Prize Value A bidder’s value for the prize consists of 2 components: bidder’s value = personal value + bonus Personal values lie between 60 and 100 points, all numbers being equally likely. Imagine that we roll a 41-sided die with faces 60, 61, …, 100 for each of you. Since we roll the die separately for each of you, your value is likely different from that of another bidder. Bonus is the same for all bidders in your group. We flip a coin for your group and if the coin flip comes up - “HEADS” the bonus is 50 points - “TAILS” the bonus is -50 points
Auction (1) The auction is based on an ascending price that starts at 0 and rises to (at most) 200 points. You can decide to drop out at any price level. As the price rises, your screen will indicate how many informed and uninformed bidders in your group have not yet dropped out. Your screen will also indicate your personal value. And, if you are the informed bidder, your screen will indicate your group’s bonus.
Auction (2) After a bidder drops out there is a 10 second delay and other bidders are told the price level at which the bidder dropped out and whether the remaining bidders are informed or uninformed. Then the price begins to rise again. The auction ends when only one bidder remains in the auction, or in other words, when three bidders have dropped out. The one remaining bidder is the winner of the auction. If the price reaches 200 points with two or more bidders still in the auction, then the winner will be randomly chosen from among these remaining bidders.
Auction Payoff The winner of the auction receives the prize value = personal value + bonus and pays the price when the auction ended. None of the other bidders in the group receive or pay anything. At the end of each auction, your group’s bonus for that auction will be revealed to all bidders in your group.
Summary (1) There will be at most 20 auctions. The price in each auction will begin at 0 and rise to (at most) 200 points. You will know your personal value but will only know the bonus if you are the informed bidder. Everyone receives 50 points at the beginning of the experiment.
Summary (2) You may drop out of the auction at any price level. When a bidder drops out, there is a 10 second delay before the price starts to rise again. Bidders are told the price level at which the bidder dropped out, and whether the remaining bidders are informed or uninformed. You win the auction if you are the only remaining bidder in the auction.
Summary (3) If you win, your payoff is personal value + bonus – price at end of auction. If you don’t win, your payoff is 0. If the price at end of auction exceeds the prize value then the winner’s payoff is negative. Your payoff is added to your cumulative earnings (you lose money if your payoff is negative).
Your Earnings 1 point = 20 cents You will be paid at the end of the experiment the total amount you have earned in all auctions. You need not tell any other participant how much you earned. Let the Experiment Begin!
