Bidding in private-value auctions with uncertain values

Peter McGee

Games and Economic Behavior, 2013, vol. 82, issue C, 312-326

Abstract: Auctions are often used to sell idiosyncratic goods difficult for potential bidders to value ex ante. Laboratory auctions with uncertainty over final values in this experiment resulted in 18% and 27% of bids above the expected value of the item in private-value first-price and English auctions, respectively. Risk-seeking preferences as measured on an individual decision task cannot explain overbidding and the first-price auction results suggest that risk aversion may not be a good explanation for bidding behavior observed with certain values. Several candidate explanations fail to explain overbidding, rather it appears to stem from some bidders who are prone to overbidding. Relative to first-price auctions, the size and frequency of overbids are significantly larger in English auctions, while more English auctions are won by overbidders. Differences between the formats appear to be driven by the dynamic nature of English auctions which is consistent with popular notions of “auction fever.”

Keywords: Auctions; Uncertain values; Auction fever (search for similar items in EconPapers)
JEL-codes: C91 D44 D80 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:82:y:2013:i:c:p:312-326

DOI: 10.1016/j.geb.2013.07.015

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