Field : Social

" It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own interest. We address ourselves not to their humanity, but of their self-love, and never talk to them of our necessities, but of their advantage. "-Wealth of Nations, by Adam Smith Traditionally, economists perceive individuals as self-regarding and rational in the sense that they make decisions optimally in pursuit of their goals. By such simplification, economists seek a universal trait which governs people's aggregate behavior and its consequence in resource allocations in various markets and non-market situations. Even after economists pay more attention to individuals' strategic interactions through game theoretic analysis, this minimalist conception of self-regarding economic agents has been maintained without much reflection. The " invisible hand " will be in charge. In non-market context, however, the accumulation of laboratory experiments in economics, sociology, and psychology has raised serious doubts about descriptive power of the conventional theory based on the self-regarding economic agents. Examples include charities where people donate substantial amount to some public good, and bargaining situations where people reject an unfair offer even if rejection is costly. (See Camerer (2003)) Meanwhile, market context has not been subject to much of question. " Market " takes a variety of forms. Not every market is gifted with the invisible hand, as indicated by the recent electric crises experienced in California. In this research, we consider two basic auction formats, the second-price auction and the English auction, selling one item. The English auction is the most familiar form of open auction, where the auctioneer raises a calling price until there remains only one active bidder. Every participant can observe her competitors' biddings. The last remaining bidder is the winner who pays the last effective calling price. The second-price auction is a sealed-bid auction, designed to be a closed version of the English auction. There, one who submitted the highest sealed bid wins but pays the second highest bid price. When each participant is self-regarding and assured of one's evaluation of the object, these two auction formats prescribe everyone to bid at her value as a dominant strategy. Then the market realizes an efficient outcome where the object is allocated to a bidder who values it most and gives her the maximum surplus equal to the difference between the highest and the second highest evaluation. …