Knowing me, imagining you: Projection and overbidding in auctions

Yves Breitmoser ()

Games and Economic Behavior, 2019, vol. 113, issue C, 423-447

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: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Working Paper: Knowing me, imagining you: Projection and overbidding in auctions (2016)
Working Paper: Knowing me, imagining you: Projection and overbidding in auctions (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:113:y:2019:i:c:p:423-447

DOI: 10.1016/j.geb.2018.10.004

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