The net effect of advice on strategy-proof mechanisms: an experiment for the Vickrey auction

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<jats:title>Abstract</jats:title><jats:p>We conduct laboratory experiments for the multi-unit Vickrey auction <jats:italic>with</jats:italic> and <jats:italic>without</jats:italic> advice to subjects on strategy-proofness. The rate of truth-telling among the subjects without advice stays at 20%, whereas the rate increases to 47% among those who have received advice. By conducting similar experiments for the pay-your-bid auction, which is not strategy-proof, we confirm that the increase in truth-telling is due significantly to the <jats:italic>net advice effect</jats:italic> (i.e., the effect beyond the so-called experimenter demand effect). Moreover, we find that providing advice improves efficiency in the Vickrey auction, particularly in the early periods, when the subjects are less experienced. In general, subjects tend to overbid in Vickrey auction experiments. Our results indicate the possibility that providing simple advice decreases such overbidding by promoting a better understanding of the strategy-proofness of the Vickrey auction. Strategy-proof mechanisms are sometimes criticized because players often fail to recognize the benefit of telling the truth. However, our observations show that introducing advice on the property of strategy-proofness helps them behave “correctly.”</jats:p>

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