The Effect of Regret on Optimal Bidding in Auctions

Richard Engelbrecht-Wiggans
Additional contact information
Richard Engelbrecht-Wiggans: Department of Business Administration, University of Illinois, 1206 South Sixth Street, Champaign, Illinois 61820

Management Science, 1989, vol. 35, issue 6, 685-692

Abstract: While most models of auctions and competitive bidding assume that each bidder's utility for an outcome depends only on his own profit, we allow the utility to also depend on any regret that a bidder suffers after the fact and characterize when and how this affects bidding. Specifically, a winner might regret "money left on the table" in Federal offshore oil lease sales, while a loser might regret seeing an object sell for less than his own value for it. We show that for risk-neutral bidders who, after the fact, know the winner's price for the object, a bidder's optimal bidding strategy will not depend on the relative weight given to profit versus regret if both forms of regret weigh equally heavily. However, if bidders weight money-left-on-the-table regret more heavily, then the bid taker suffers. Likewise, if losers do not learn the winner's price, then the bid taker also suffers. Thus, the existing models' exclusion of regret from risk neutral bidders' utility functions affects the applicability of the resulting theory under certain, now clearly delineated, conditions.

Keywords: auctions; competitive bidding; regret; money left on the table (search for similar items in EconPapers)
Date: 1989
References: Add references at CitEc
Citations: View citations in EconPapers (47)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.35.6.685 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:35:y:1989:i:6:p:685-692

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().