The Revelation Principle depends on a seemingly innocuous assumptio theoretically outcome-equivalent (TOE) direct and indirect mechanisms are behaviorally equivalent as well. We use the first-price sealed-bid auction as our indirect mechanism and construct corresponding TOE direct mechanisms.

In contrast with what theory predicts, subjects behave significantly differently under direct and indirect mechanisms: (i) The revenue equivalence does not hold - the indirect mechanism generated higher revenue than the direct mechanisms, (ii) subjects behaved as if they were less risk averse in the direct mechanisms, (iii) moreover, we observed different bids across direct mechanisms. We show that a reference-dependent model explains the behavioral differences.

Link to the paper is: http://www-personal.umich.edu/~neslihan/Uler_auction.pdf