IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v111y2021i10p3256-98.html

Projection of Private Values in Auctions

Author

Listed:
  • Tristan Gagnon-Bartsch
  • Marco Pagnozzi
  • Antonio Rosato

Abstract

We explore how taste projection—the tendency to overestimate how similar others' tastes are to one's own—affects bidding in auctions. In first-price auctions with private values, taste projection leads bidders to exaggerate the intensity of competition and, consequently, to overbid—irrespective of whether values are independent, affiliated, or (a)symmetric. Moreover, the optimal reserve price is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others' information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions.

Suggested Citation

  • Tristan Gagnon-Bartsch & Marco Pagnozzi & Antonio Rosato, 2021. "Projection of Private Values in Auctions," American Economic Review, American Economic Association, vol. 111(10), pages 3256-3298, October.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:10:p:3256-98
    DOI: 10.1257/aer.20200988
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/aer.20200988
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/aer.20200988.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/aer.20200988.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/aer.20200988?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Balzer, Benjamin & Rosato, Antonio, 2025. "Never say never: Optimal exclusion and reserve prices with expectations-based loss-averse buyers," Journal of Economic Theory, Elsevier, vol. 228(C).
    2. Giacomo Rubbini, 2023. "Mechanism Design without Rational Expectations," Papers 2305.07472, arXiv.org, revised Nov 2023.
    3. Kevin He & Ran Shorrer & Mengjia Xia, 2025. "Human Misperception of Generative-AI Alignment:A Laboratory Experiment," PIER Working Paper Archive 25-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    4. Rosato, Antonio & Tymula, Agnieszka A., 2024. "A novel experimental test of truthful bidding in second-price auctions with real objects," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 111(C).
    5. Kevin He & Jonathan Libgober, 2025. "Higher-Order Beliefs and (Mis)learning from Prices," PIER Working Paper Archive 25-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    6. Mira Frick & Ryota Iijima & Yuhta Ishii, 2018. "Dispersed Behavior and Perceptions in Assortative Societies," Cowles Foundation Discussion Papers 2128, Cowles Foundation for Research in Economics, Yale University.
    7. Ollar, Mariann & Penta, Antonio, 2024. "Incentive Compatibility and Belief Restrictions," TSE Working Papers 24-1558, Toulouse School of Economics (TSE).
    8. Morita, Kimiyuki & Muramoto, Akitoshi & Sogo, Takeharu, 2025. "Optimal contracts under interpersonal projection," Games and Economic Behavior, Elsevier, vol. 150(C), pages 356-364.
    9. Gretschko, Vitali & Mass, Helene, 2024. "Worst-case equilibria in first-price auctions," Theoretical Economics, Econometric Society, vol. 19(1), January.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:111:y:2021:i:10:p:3256-98. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.