scholarly journals Empirical Implications of Equilibrium Bidding in First-Price, Symmetric, Common Value Auctions

10.3386/w8294 ◽  
2001 ◽  
Author(s):  
Kenneth Hendricks ◽  
Joris Pinkse ◽  
Robert Porter
Keyword(s):  
Common Value ◽  
Common Value Auctions ◽  
Equilibrium Bidding ◽  
Empirical Implications

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.

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