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

Patrick Schmitz and Andreas Roider

No 6476, CEPR Discussion Papers from Centre for Economic Policy Research

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)

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Journal Article: Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices (2012)
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