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Irrationality in English auctions

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  • Gonçalves, Ricardo

Abstract

This paper explores the effects of a particular form of irrational behaviour by participating bidders in a common value English auction. We allow bidders to update their expected valuation of the good as the current price increases, assuming that their opponents always play the symmetric Nash equilibrium. When only one bidder adopts this type of behaviour, it is ambiguous whether the final auction price is higher or lower than at the symmetric equilibrium. However, when both bidders behave irrationally, the final auction price is never lower than the symmetric equilibrium provided bidders "match" their strategies.

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  • Gonçalves, Ricardo, 2008. "Irrationality in English auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 180-192, July.
    • Handle: RePEc:eee:jeborg:v:67:y:2008:i:1:p:180-192
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    References listed on IDEAS

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    1. Bikhchandani, Sushil & Riley, John G., 1991. "Equilibria in open common value auctions," Journal of Economic Theory, Elsevier, vol. 53(1), pages 101-130, February.
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    Cited by:

    1. Hungria Gunnelin, Rosane, 2020. "Bidding strategies and winner’s curse in auctions of non-distressed residential real estate," Working Paper Series 20/13, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    2. Jin Li & Kwok Fai Tso & Fangtao Liu, 2017. "Profit earning and monetary loss bidding in online entertainment shopping: the impacts of bidding patterns and characteristics," Electronic Markets, Springer;IIM University of St. Gallen, vol. 27(1), pages 77-90, February.
    3. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    4. Ricardo Gonçalves & John D Hey, 2007. "Experimental Evidence on English Auctions: Oral Outcry vs. Clock," Discussion Papers 07/09, Department of Economics, University of York.

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