Knowing Me, Imagining You

Yves Breitmoser ()

No 36, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: Overbidding in auctions has been attributed to e.g. risk aversion, loser regret, level-k, and cursedness, relying on varying identifying assumptions. I argue that \"type projection\'\" organizes these findings and largely captures observed behavior. Type projection formally models that people tend to believe others have object values similar to their own - a robust psychological phenomenon that naturally applies to auctions. First, I show that type projection generates the main behavioral phenomena observed in auctions, including increased sense of competition (\"loser regret\") and broken Bayesian updating (\"cursedness\"). Second, re-analyzing data from seven experiments, I show that type projection explains the stylized facts of behavior across private and common value auctions. Third, in a structural analysis relaxing the identifying assumptions made in earlier studies, type projection consistently captures behavior best, in-sample and out-of-sample. The results reconcile bidding patterns across conditions and have implications for behavioral and empirical analyses as well as policy.

Keywords: auctions; overbidding; projection; risk aversion; cursed equilibrium; depth of reasoning (search for similar items in EconPapers)
JEL-codes: C72 C91 D44 (search for similar items in EconPapers)
Date: 2017-06-06
New Economics Papers: this item is included in nep-des, nep-exp, nep-gth and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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