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A non-game-theoretic approach to bidding in first-price and all-pay auctions

Paul Pezanis-Christou () and Hang Wu

No 2018-12, School of Economics Working Papers from University of Adelaide, School of Economics

Abstract: We propose a novel approach to the modelling of behavior in first-price and all-pay auctions that builds on the presumption that bidders do not engage in game-theoretic reasoning. Our models, AsP (for Aspired-Payoff) and nIBE (for naïve Impulse Balance Equilibrium), exploit the information available to bidders and assume risk neutrality, no best-responding behavior and no profit-maximization. Their parameter-free variants entail either overbidding or Nash equilibrium bidding. We assess their explanatory power with the data of first-price and all-pay auction experiments and find that overall, our models outperform Nash in explaining the data on either format. Assuming probability misperception further improves their goodness-of-fit. Assuming impulse weighting in nIBE may lead to overbidding and organizes the effect of end-of-round information feedback on behavior in repeated auctions.

Keywords: first-price auctions; all-pay auctions, overbidding, anticipated regret; information-feedback; Symmetric Bayes-Nash Equilibrium; Impulse Balance Equilibrium; nonlinear probability weighting; revenue equivalence; experiments (search for similar items in EconPapers)
JEL-codes: C91 D03 D4 D44 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-des, nep-exp and nep-upt
Date: 2018-08
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