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Auctions with Anticipated Regret: Theory and Experiment

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Author Info
Emel Filiz-Ozbay
Erkut Y. Ozbay

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Abstract

This paper demonstrates theoretically and experimentally that in first-price auctions overbidding with respect to the risk neutral Nash equilibrium might be driven from anticipated loser regret (felt when bidders lose at an affordable price). Different information structures are created to elicit regret: bidders know they will learn the winning bid if they lose (loser regret condition); or the second-highest bid if they win (winner regret condition); or they will receive no feedback regarding the other bids. Bidders in loser regret condition anticipated regret and significantly overbid. However, bidders in the winner regret condition did not anticipate regret. (JEL D44)

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 4 (September)
Pages: 1407-1418
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Handle: RePEc:aea:aecrev:v:97:y:2007:i:4:p:1407-1418

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  1. Dirk Bergemann & Karl Schlag, 2005. "Robust Monopoly Pricing," Cowles Foundation Discussion Papers 1527R, Cowles Foundation, Yale University, revised Apr 2007. [Downloadable!]
    Other versions:
  2. Roider, Andreas & Schmitz, Patrick W., 2007. "Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices," CEPR Discussion Papers 6476, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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This page was last updated on 2008-4-27.

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