Experimental Economics - Essay Example

The students are supposed to sit in the computer lab and follow all the instructions provided by the instructor. The students bid for this particular product in rounds. The bid must range from $0 up to $20. Every student must be independent and must not be influenced by the decision of the other students (Salmon 34). However, for this to be efficient, no student will be able see the bid of his or her opponent, on all cases. The value to be bidden by the student will be decided randomly. However, the highest bidder will win the auction.

If any student does not win the auction, there will be no return or compensation for them. The students are to bid twice for the product. The experiment is carried out to prove that the higher the first bidding price, the higher the chances of winning the auction. The experiment takes few minutes since students involved will only bid and then wait for the next one to bid too. The experiment requires the student to bid in rounds. However, they have to be divided in groups of two. In every round, a student’s makes a bid of his wish.

The students should have no knowledge on the bidding process. However, the instructor will have provided the prize value of the product being auctioned. All the bidders who lose will earn nothing. The students too must chose prices above the prize value of the product. This experiment will target at answering the economics question above. At first, students decide to bid their highest price possible in order to win the auction. Most of them even bid the total amount they have, remaining with nothing.

However, bidding a first high price increases the chances of winning, as the experiment will show (Ginib 65). Instructions to the students and the instructor will be important to prevent confusion during the experiment. The students are to sit strategically in the computer room. The instructor will advise the students to rely on