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The overbidding-myth and the underbidding-bias in first-price auctions

Oliver Kirchkamp () and J. Philipp Reiss

No 04-32, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: Experiments with first price auctions find typically a substantial amount of overbidding which is often related to risk aversion. If this could be generalised then first-price auctions should generate a higher revenue then second-price auctions. We show that at least part of this overbidding is an artefact of common experimental setups which prevents bidders from underbidding. We compare various setups and identify conditions for underbidding and overbidding and study the effect on revenue.

Pages: 20 pages
Date: 2004-10-07
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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