Spite vs. risk: explaining overbidding

Oliver Kirchkamp and Wladislaw Mill

No 7631, CESifo Working Paper Series from CESifo

Abstract: In this paper we use an experiment to compare a theory of risk aversion and a theory of spite as an explanation for overbidding in auctions. As a workhorse we use the second-price all-pay and the first-price winner-pay auction. Both risk and spite can be used to rationalize deviations from risk neutral equilibrium bids in auctions. We exploit that equilibrium predictions in the second-price all-pay auctions for spiteful preferences are different than those for risk averse preferences. Indeed, we find that spite is a more convincing explanation for bidding behavior for the second-price all-pay auction. Not only can spite rationalize observed bids, also our measure for spite is consistent with observed bids.

Keywords: auction; overbidding; spite; risk; experiment (search for similar items in EconPapers)
JEL-codes: C72 C91 D44 D91 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-des, nep-exp, nep-gth and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7631

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