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Regret and Feedback Information in First-Price Sealed-Bid Auctions

Author

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  • Richard Engelbrecht-Wiggans

    (College of Business, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820)

  • Elena Katok

    (Smeal College of Business, Penn State University, University Park, Pennsylvania 16802)

Abstract

We investigate the effect of regret-related feedback information on bidding behavior in sealed-bid first-price auctions. Two types of regret are possible in this auction format. A winner of the auction may regret paying too much relative to the second highest bid, and a loser may regret missing an opportunity to win at a favorable price. In theory, under very general conditions, being sensitive to winning and paying too much should result in lower average bids, and being sensitive to missing opportunities to win at a favorable price should result in higher bids. For example, the U.S. Government's policy of revealing losing bids may cause regret-sensitive bidders to anticipate regret and bid conservatively, decreasing the government's revenue. We test these predictions in the laboratory and find strong support for both.

Suggested Citation

  • Richard Engelbrecht-Wiggans & Elena Katok, 2008. "Regret and Feedback Information in First-Price Sealed-Bid Auctions," Management Science, INFORMS, vol. 54(4), pages 808-819, April.
    • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:4:p:808-819
    DOI: 10.1287/mnsc.1070.0806
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    References listed on IDEAS

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