Individual behavior of first-price auctions: The importance of information feedback in computerized experimental markets

This article reports the results of an individual choice experiment designed to test the Nash equilibrium predictions of the first-price sealed-bid auction. A subject faced in 100 auctions always the same resale value and competed with computer-simulated bids. The design used between-subjects variation and involved information feedback as the treatment variable. Earlier experimental work on first price auctions has frequently reported an overbidding relative to the risk neutral Nash equilibrium. Our data provide evidence that overbidding can be fostered by the standard information feedback in auction experiments, which, after each auction, reveals the winning bid only. By means of learning direction theory we explain the individual bidding dynamics in our experiment. Finally we apply impulse balance theory and make long run predictions of individual bidding behavior.