Understanding Overbidding In Second Price Auctions: An Experimental Study

DavidJ. Cooper and Hanming Fang

Economic Journal, 2008, vol. 118, issue 532, pages 1572-1595

Abstract: We present results from second price private value auction (SPA) experiments where bidders may receive noisy signals about their opponents' value. Such signals change bidders' perception about the 'strength' of their opponent, and the relationship between bidders' perception of their opponent and overbidding provides a novel channel to understand overbidding in SPA. We found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values, supporting a modified 'joy of winning' hypothesis but large overbids are more likely to occur when bidders believe their opponents to have much higher values, consistent with the 'spite' hypothesis. Copyright © The Author(s). Journal compilation © Royal Economic Society 2008.

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