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An Ascending Auction in the Presence of Rationality and Herd Behaviour

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  • Ricardo Gonçalves

Abstract

In this paper we analyse a common value English auction. We argue that rational bidders attempt to estimate each other’s private signals, to take advantage of the additional information disclosed through the bids. If this happens, herd behaviour might arise, because a particular bidder may have an incentive to follow his estimate of some other bidder’s signal, thus dropping his own, and staying in the auction longer than previously optimal. Acting upon beliefs might take the auction to an inefficient outcome, where the bidder who most values the good ends up not getting the object for sale.

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File URL: http://www.york.ac.uk/media/economics/documents/discussionpapers/1999/9908.pdf
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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 99/8.

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Handle: RePEc:yor:yorken:99/8

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Keywords: English Auctions; Rationality; Herd Behaviour;

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  1. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Christopher Avery & John H. Kagel, 1997. "Second-Price Auctions with Asymmetric Payoffs: An Experimental Investigation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 573-603, 09.
  3. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
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