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The Bidder's Curse

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  • Young Han Lee
  • Ulrike Malmendier

Abstract

We employ a novel approach to identify overbidding in the field. We compare auction prices to fixed prices for the same item on the same webpage. In detailed board-game data, 42 percent of auctions exceed the simultaneous fixed price. The result replicates in a broad cross-section of auctions (48 percent). A small fraction of overbidders, 17 percent, suffices to generate the overbidding. The observed behavior is inconsistent with rational behavior, even allowing for uncertainty and switching costs, since also the expected auction price exceeds the fixed price. Limited attention to outside options is most consistent with our results.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13699.

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Date of creation: Dec 2007
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Handle: RePEc:nbr:nberwo:13699

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Citations

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Cited by:
  1. Gary E Bolton & Axel Ockenfels, 2007. "Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on EBay," Working Paper Series in Economics 36, University of Cologne, Department of Economics, revised 24 Feb 2011.
  2. Stefano DellaVigna, 2007. "Psychology and Economics: Evidence from the Field," NBER Working Papers 13420, National Bureau of Economic Research, Inc.
  3. Englmaier, Florian & Schmöller, Arno & Stowasser, Till, 2013. "Price Discontinuities in an online used Car Market," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79982, Verein für Socialpolitik / German Economic Association.
  4. Schmöller, Arno, 2010. "Bidding Behavior, Seller Strategies, and the Utilization of Information in Auctions for Complex Goods," Munich Dissertations in Economics 11175, University of Munich, Department of Economics.
  5. Rahaman, Mohammad M., 2014. "Do managerial behaviors trigger firm exit? The case of hyperactive bidders," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(1), pages 92-110.
  6. Bramsen, Jens-Martin, 2008. "Bid early and get it cheap - Timing effects in Internet auctions," MPRA Paper 14811, University Library of Munich, Germany.
  7. Dennis Halcoussis & Timothy Mathews, 2007. "eBay auctions for Third Eye Blind concert tickets," Journal of Cultural Economics, Springer, vol. 31(1), pages 65-78, March.
  8. Pownall, Rachel A.J. & Wolk, Leonard, 2013. "Bidding behavior and experience in internet auctions," European Economic Review, Elsevier, vol. 61(C), pages 14-27.
  9. Bramsen, Jens-Martin, 2008. "A pseudo-endowment effect in internet auctions," MPRA Paper 14813, University Library of Munich, Germany.
  10. Hammond, Robert G., 2013. "A structural model of competing sellers: Auctions and posted prices," European Economic Review, Elsevier, vol. 60(C), pages 52-68.

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