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Welcome to CASSEL

Welcome to the CASSEL Lab, and thank you for participating in today’s experiment.

It is very important that you do not touch the computer until you are instructed to do so. And when you are told to use the computer, use it only as instructed. In particular, do not attempt to browse the web or do other things unrelated to the experiment.

There should be a pencil in the envelope you received.

Place all of your personal belongings away, so we can have your complete attention.

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The Experiment

The experiment you will be participating in today is an experiment in decision making. At the end of the experiment you will be paid for your participation in cash. Each of you may earn different amounts. The amount you earn depends on your decisions, chance, and the decisions of other participants.

Please DO NOT socialize or talk during the experiment.

We will go over the instructions slowly. It is important you follow.

When you have a question please raise your hand and one of us will come to you to answer it in PRIVATE.

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The Experiment

We will run 10 auctions.

In each auction you are

randomly matched with 2 other bidders.

The three of you will compete for a

single prize of unknown value as explained next.

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Bidder’s Prize ValueA bidder’s value for the prize consists of 2 components:

bidder’s value = personal value + bonus

Personal values lie between 300 and 500 points, all numbers being equally likely. Imagine that we roll a 201-sided die with faces 300, 301, …, 500 for each of you. Since we roll the die separately for each of you, your value is likely different from that of another bidder.

Bonus is the same for all bidders in your group.

We flip a coin for your group and if the coin flip comes up

- “HEADS” the bonus is 300 points

- “TAILS” the bonus is -300 points

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Information

Each bidder will know their own personal value for the prize.

In addition, we will select at random one bidder in your group who will get to know the bonus.

This bidder will be called the “informed bidder”.

The other two bidders in your group will not get to know the bonus.

These two bidders will be called “uninformed bidders”.

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Auction: stage 1 The auction proceeds in 2 stages.

AUCTION: FIRST STAGE

In the first stage all three bidders in your group place a bid.

The two highest bidders will be allowed to the second stage (ties are resolved at random).

The two highest bidders are told the lowest bid in the first stage and whether the bid was made by the informed or an uninformed bidder.

The first-stage bids do not have to be paid.

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Auction: stage 2The auction proceeds in 2 stages.

AUCTION: SECOND STAGE

In the second stage the two remaining bidders place a bid.

The highest bidder wins the prize and pays the second-highest bid (ties are solved at random).

None of the other bidders in the group win anything or pay anything.

All bidders, winner and losers, will earn 50 points each period.

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Stage 1 Screen: Informed Bidder

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Stage 1 Screen: Uninformed bidder

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Stage 1 result screen:

Lowest Bidder

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Stage 1 result screen: Highest Bidders

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Stage 2 result screen: Winner

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Stage 2 result screen: loser

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Stage 2 result screen: first-stage loser

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Summary (1) There will be 10 auctions; each auction proceeds in 2 stages.

Every bidder will know their personal value but only the informed bidder will know the bonus.

FIRST STAGE In the first stage all three bidders in your group place a bid.The two highest bidders will be allowed to the second stage.The two highest bidders are told the lowest bid in the first stage and whether the bid was made by the informed or an uninformed bidder. The first-stage bids do not have to be paid.

SECOND STAGE In the second stage the two remaining bidders place a bid. The highest bidder wins the prize and pays the second-highest bid. None of the other bidders in the group win or pay anything.

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Summary (2) The winner of the second stage receives the

prize value = personal value + bonus

and pays the

second highest bid

of the second stage.

If this bid exceeds the prize value because the bonus is negative then the winner’s net winnings are negative.

Your net winnings are added to your cumulative earnings if they are positive;

Likewise, your net winnings are substracted from your cumulative earnings if they are negative.

In addition, all bidders earn 50 points each period.

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Your Earnings1 point = 1 cent

You will be paid at the end of the experiment the total amount you have earned in all of 10 periods. You need not tell any other participant how much you earned.

Let the Experiment Begin!