A Naïve Approach to Bidding

Paul Pezanis-Christou and Hang Wu ()

No 2017-03, School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy

Abstract: We propose a novel approach to the modelling of bidding behavior in pay-your-bid auctions that builds on the presumption that bidders are mostly concerned with losing an auction if they happen to have the highest signal. Our models assume risk neutrality, no profit maximization and no belief about competitors' behavior. They may entail overbidding in first-price and all-pay auctions and we discuss conditions for the revenue equivalence of standard pay-your-bid auctions to hold. We fit the models to the data of first-price auction experiments and find that they do at least as well as Vickreys benchmark model for risk neutral bidders. Assuming probability misperception or impulse weighting (when relevant) improves their goodness-of-fit and leads to very similar revenue predictions. An analysis of individuals' heterogeneous behavioral traits suggests that impulse weighting is a more consistent rationale for the observed behavior than a power form of probability misperception.

Keywords: first-price auctions; all-pay auctions; impulse balance equilibrium; overbidding; bounded rationality; probability distortion; regret; experiments. (search for similar items in EconPapers)
JEL-codes: C44 C72 D44 L2 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-gth, nep-hpe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://media.adelaide.edu.au/economics/papers/doc/wp2017-03.pdf (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:adl:wpaper:2017-03

Access Statistics for this paper

More papers in School of Economics and Public Policy Working Papers from University of Adelaide, School of Economics and Public Policy Contact information at EDIRC.
Bibliographic data for series maintained by Qazi Haque ().