Anomalies in Auction Choice Behavior
AbstractIvanova-Stenzel and Salmon (2004a) established some interesting yet puzzling results regarding biddersâ€™ preferences between auction formats. The finding is that bidders strongly prefer the ascending to the first price sealed bid auction on a ceteris paribus basis but they are not willing to pay up to an entry price for entering into an ascending auction instead of a first price that would equalize the profits between the two. While it was found that risk aversion on the part of the bidders could resolve this anomaly the claim that risk aversion drives overbidding in first price auctions is somewhat controversial. In this study we examine two competing explanations for the observed behavior; loss aversion and â€œclock aversionâ€, i.e. a dislike for some aspect of the clock based bidding mechanism. We find that neither alternative explanation can account for biddersâ€™ auction choice behavior leaving risk aversion as the only un-falsified hypothesis.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 174.
Date of creation: Oct 2006
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More information through EDIRC
bidder preferences; private values; sealed bid auctions; ascending auctions;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-14 (All new papers)
- NEP-EXP-2007-01-14 (Experimental Economics)
- NEP-GTH-2007-01-14 (Game Theory)
- NEP-UPT-2007-01-14 (Utility Models & Prospect Theory)
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