BIDDING IN COMMON VALUE AUCTIONS - HOW THE COMMERCIAL CONSTRUCTION-INDUSTRY CORRECTS FOR THE WINNERS CURSE

Experienced construction industry executives suffer from a winner's cu rse in laboratory common value auction markets (Dyer et al. 1989). Thi s paper identifies essential differences between field environments an d the economic theory underlying the laboratory markets that account f or the executives' success in the field and a winner's curse in the la b. These are (1) industry-specific mechanisms which enable contractors to escape the winner's curse even when they bid too low, (2) learned, industry-specific evaluative processes which enable experienced contr actors to avoid the winner's curse in the first place, and (3) importa nt private value elements that underlie bidding. Also identified are a number of industry-specific bidding characteristics whose evolution c an be explained using modern auction theory. Lessons are drawn regardi ng the use of experimental methods in economics.