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Abstract:
We compare two equivalent variants of an experimental common value auction: In one more-standard auction format, uncertainty about the common-value item is defined over outcomes, while in another format–a so-called common-probability auction–uncertainty is defined over probabilities. In contrast to the substantial overbidding found in common-value auctions, bidding behavior in common-probability auctions is consistent with risk-neutral Nash equilibrium bids and even exhibits slight underbidding.