Bidding with money or action plans ? Asset allocation under strategic uncertainty ∗

We consider, theoretically and experimentally, several alternative mechanisms to allocate assets when the future value of an asset is unknown at the time of allocation because of strategic uncertainty. We compare the performance of auctions (bidding with money) for the right to play the minimum effort coordination game with a competitive allocation process where participants bid with game action plans. Provided that bidders commit to their plans, bidding with action plans eliminates strategic uncertainly and is characterized by the unique fully efficient Nash equilibrium. Allowing to revise the action plans after the assets are allocated admits both informative fully efficient, and uninformative babbling equilibria. In the experiment, in line with the theory, bidding with action plans with commitment consistently leads to the efficient outcomes, whereas without commitment, both fully efficient and inefficient outcomes are observed. Auctioning off the right to play leads to higher actions than under random allocation, but is characterized by significant overbidding and winner losses. We further experimentally compare the mechanisms in terms of their ability to train the player to achieve and sustain efficient coordination even after the allocation mechanism changes.