Quantal response and nonequilibrium beliefs explain overbidding in maximum-value auctions

Colin Camerer (), Salvatore Nunnari and Thomas Palfrey

Games and Economic Behavior, 2016, vol. 98, issue C, 243-263

Abstract: We report new experimental data on a simple common value auction to investigate the extent to which bidding can be explained by logit QRE, in combination with different models about bidder beliefs: cursed equilibrium, level-k, and cognitive hierarchy. There is a close correspondence between the predicted bidding patterns in those models and the distribution of observed bids. The pattern of median bids in the data consists of a combination of overbidding with low signals, and near-value-bidding with higher signals. Logit QRE with heterogeneous bidders approximates this pattern. Combining QRE with any of the other models of belief formation leads to a closer match with the data. All the estimated models predict only small treatment effects across different versions of the game, consistent with the data. We also reanalyze an earlier dataset for the same game (Ivanov et al., 2010), which exhibited much more overbidding, and reach similar qualitative conclusions.

Keywords: Auctions; Common-value; QRE; Experiment; Estimation (search for similar items in EconPapers)
JEL-codes: C92 D44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:98:y:2016:i:c:p:243-263

DOI: 10.1016/j.geb.2016.06.009

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