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Impulse balance equilibrium and feedback in first price auctions

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  • Ockenfels, Axel
  • Selten, Reinhard

Abstract

Experimental sealed bid first price auctions with private values in which feedback on the losing bids is provided yield lower revenues than auctions where this feedback is not given. Furthermore, bids tend to be above the equilibrium predictions for risk neutral bidders. While the latter observation has been rationalized in terms of risk aversion, rational bidding is invariant to feedback on losing bids. We propose the concept of weighted impulse balance equilibrium that is based on learning direction theory and that incorporates a concern for social comparison. The one-parameter model captures both overbidding and the feedback effect.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 51 (2005)
Issue (Month): 1 (April)
Pages: 155-170

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Handle: RePEc:eee:gamebe:v:51:y:2005:i:1:p:155-170

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Web page: http://www.elsevier.com/locate/inca/622836

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  9. Selten, Reinhard & Joachim Buchta, 1994. "Experimental Sealed Bid First Price Auctions with Directly Observed Bid Functions," Discussion Paper Serie B 270, University of Bonn, Germany.
  10. Reinhard Selten & Klaus Abbink & Ricarda Cox, 2001. "Learning Direction Theory and the Winner’s Curse," Bonn Econ Discussion Papers bgse10_2001, University of Bonn, Germany.
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