Individual Behavior In Auctions with Price Proportional Benefits

Auctions with price proportional benefits involve situations in which bidders receive utility from the revenue raised by the auctioneer. We conduct experimental treatments with three classes of induced preferences and find that while bidders' response to incentives is on average consistent with theory, only one class of preferences leads to a significant increase in revenue. We then test for the presence of such preferences in experiments where auction revenue is donated to an actual charity. The latter sessions were conducted with a standard subject pool and with a special subject pool consisting of individuals with a very strong connection to the relevant charity. Subjects with a strong connection to charity evidence slightly more aggressive bidding behavior when the revenue is going to a charity but this is not strong enough to generate a significant increase in revenue. These results suggest that preferences in the natural environment are consistent with the manner of preferences assumed in the theory.