Endogenous Entry and Self-selection in Private Value Auctions: An Experimental Study¤

This paper presents the results of an experimental study of endogenous entry and bidding behavior in ...rst-price independent private value auctions. In the ...rst stage N potential bidders simultaneously decide whether to participate in an auction or to claim a ...xed outside option. At this stage all potential bidders know N, the distribution of possible values, and the value of the outside option. In the second stage, each entering bidder submits a bid after learning their own private value for the object and the number of entering bidders. We ...nd evidence of self-selection e¤ect, as predicted by an equilibrium model of heterogeneous risk averse bidders. The theoretical model predicts that bidding in the auction will be lower with endogenous entry because only the less risk averse bidders will choose to enter. We also ...nd that entry decreases with the value of the outside option, as predicted. There is a signi...cant level e¤ect in all treatments, with over-entry relative to the theoretical predictions.