Projection of Private Values in Auctions

Tristan Gagnon-Bartsch, Marco Pagnozzi and Antonio Rosato

American Economic Review, 2021, vol. 111, issue 10, 3256-98

Abstract: We explore how taste projection—the tendency to overestimate how similar others' tastes are to one's own—affects bidding in auctions. In first-price auctions with private values, taste projection leads bidders to exaggerate the intensity of competition and, consequently, to overbid—irrespective of whether values are independent, affiliated, or (a)symmetric. Moreover, the optimal reserve price is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others' information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions.

JEL-codes: D11 D44 D82 D83 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Working Paper: Projection of Private Values in Auctions (2020)
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DOI: 10.1257/aer.20200988

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