Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices

Patrick Schmitz and Andreas Roider

No 6476, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The experimental literature has documented that there is overbidding in second-price auctions, regardless of bidders' valuations. In contrast, in first-price auctions there tends to be overbidding for large valuations, but underbidding for small valuations. We show that the experimental evidence can be explained by a simple extension of the standard auction model, where bidders anticipate positive or negative emotions caused by the mere fact of winning or losing. Even if the "emotional" (dis-)utility is very small, the seller's optimal reserve price r* may be significantly different from the standard model. Moreover, r* is decreasing in the number of bidders.

Keywords: Auction theory; Emotions; Reserve prices (search for similar items in EconPapers)
JEL-codes: D44 D81 D82 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-exp, nep-gth, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://cepr.org/publications/DP6476 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6476

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6476

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().