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Auction for Prominence and Price-Directed Consumer Search: Theory and Experiment

Abstract: We develop a model of paid search prominence and test its predictions in a controlled laboratory experiment varying the prominence level. Two sellers bid in a second-price auction for a prominent position that confers a search cost advantage over the rival, then simultaneously post prices observable to the consumer, who searches sequentially. The prominent seller is predicted to price higher, a gap qualitatively confirmed by the experimental results. But prices are more dispersed than theory implies, compressing this gap. Consistent with theory, the price gap widens with the prominence level. Sellers systematically overbid relative to the rational benchmark. Consumers depart from optimal search in both directions, which partly rationalizes sellers' observed behavior. Efficiency modestly declines with the prominence level, and most surplus accrues to consumers and the platform.

Revisiting the Intra-Team Communication Method to Elicit Level-k Reasoning in Beauty Contests and 11–20 Games

with Istiak Ahmed, Patarasate Unjitwattana, Emily Yunxi Xie, Meng-Jhang Fong, and Po-Hsuan Lin

First author. Revising at European Economic Review.

Abstract: In this paper, we provide the first replication of the original beauty contest experiment with the intra-team communication method of Burchardi and Penczynski (2014). We also apply this method to the 11–20 game, another canonical setting for studying level-k reasoning proposed by Arad and Rubinstein (2012). Focusing on the “re-ordered” version introduced by Goeree et al. (2018), which exhibits heterogeneous noisy behavior not well explained by the standard level-k model, we not only provide the first replication of this re-ordered 11–20 game, but also use the method to illuminate the reasoning underlying such behavior and its relationship to level-k thinking. Overall, our study offers an integrated perspective on empirical patterns in two canonical games with boundedly rational behavior.

Coordination under Uncertainty and Noisy Communication: A Generalized Email Game

Abstract: Which information transmission protocols improve coordination under uncertainty and noisy communication? Theory is indeterminate between an inefficient "tacit" equilibrium, where information is ignored, and an efficient "vocal" equilibrium, where players act on it. We test this in a laboratory experiment based on a generalized e-mail game, exogenously varying the message-generation rule across three protocols. Vocal behavior rises with the incentive to take the risky action, and relative to an automatic protocol, voluntary messaging significantly improves coordination. However, a sunk cost to sending reduces vocality by inducing senders to opt out. These patterns suggest that voluntariness credibly signals players’ intent to coordinate via forward induction, and that the value of cost-free signaling for equilibrium selection hinges on the alignment of interests.