Reference Dependent Preferences and Overbidding in Private and Common Value Auctions

2013 ◽  
Author(s):  
Mariano Runco
Keyword(s):  
Common Value ◽  
Common Value Auctions ◽  
Reference Dependent Preferences

Reference-Dependent Preferences and Overbidding in Private and Common Value Auctions

2020 ◽  
Vol 9 (2) ◽  
pp. 20-37
Author(s):  
Mariano Gabriel Runco
Keyword(s):  
Information Criterion ◽  
Experimental Auctions ◽  
Bidding Strategies ◽  
Common Value ◽  
Common Value Auctions ◽  
Equilibrium Bidding ◽  
Private Value ◽  
Standard Risk ◽  
Better Than ◽  
Reference Dependent Preferences

This paper proposes a model of reference dependent preferences to explain overbidding in private and common value auctions. It is assumed that the reference point is proportional to the value of the object and that losses are weighed more heavily than gains in the utility function. Equilibrium bidding strategies are derived for first- and second-price private and common value auctions. I find that this model fits the data of all experiments analyzed, both private and common value, better in terms of the Bayesian Information Criterion than a standard risk neutral model; moreover, it explains overbidding in all private value and some common value auctions better than other alternative models. These results suggest that reference dependence, among other factors, might play a role in the widespread tendency of subjects to overbid in most experimental auctions.

scholarly journals Single object auctions with interdependent values

2011 ◽  
Vol 56 (188) ◽  
pp. 125-169
Author(s):  
Dejan Trifunovic
Keyword(s):  
Single Object ◽  
English Auction ◽  
Common Value ◽  
Reserve Prices ◽  
Interdependent Values ◽  
Common Value Auctions ◽  
Expected Revenue

This paper reviews single object auctions when bidders? values of the object are interdependent. We will see how the auction forms could be ranked in terms of expected revenue when signals that bidders have about the value of the object are affiliated. In the discussion that follows we will deal with reserve prices and entry fees. Furthermore we will examine the conditions that have to be met for English auction with asymmetric bidders to allocate the object efficiently. Finally, common value auctions will be considered when all bidders have the same value for the object.

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