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Getting Carried Away in Auctions as Imperfect Value Discovery

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Author Info
Eric Rasmusen (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

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Abstract

Bidders in auctions must decide whether and when to incur the cost of estimating the most they are willing to pay. This can explain why people seem to get carried away, bidding higher than they had planned before the auction and then finding they had paid more than the object was worth to them. Even when such behavior is rational, ex ante, it may be perceived as irrational if one ignores other situations in which people revise their bid ceilings upwards and are happy when that enables them to win the auction.

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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2007-05-rasmusen.pdf
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2007-05.

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Date of creation: 2007
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Handle: RePEc:iuk:wpaper:2007-05

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  1. Eric Rasmusen, 2004. "When Does Extra Risk Strictly Increase the Value of Options?," Finance 0409004, EconWPA. [Downloadable!]
  2. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September. [Downloadable!] (restricted)
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  3. Eric Rasmusen, 2001. "Explaining Incomplete Contracts as the Result of Contract-Reading Costs," Advances in Economic Analysis & Policy, Berkeley Electronic Press, vol. 1(advances/), pages 1000-1000. [Downloadable!] (restricted)
  4. Eric Rasmusen, 2006. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," Advances in Theoretical Economics, Berkeley Electronic Press, vol. 6(1), pages 1261-1261. [Downloadable!] (restricted)
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  5. Jeremy Bulow & Paul Klemperer, 2002. "Prices and the Winner's Curse," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 1-21, Spring.
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  6. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
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  1. Eric Rasmusen, 2006. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," Advances in Theoretical Economics, Berkeley Electronic Press, vol. 6(1), pages 1261-1261. [Downloadable!] (restricted)
    Other versions:
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