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Heterogeneous bids in auctions with rational and boundedly rational bidders: theory and experiment

Author

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  • Oliver Kirchkamp

    (Universität Jena)

  • J. Philipp Reiß

    (Karlsruhe Institute of Technology (KIT))

Abstract

We present results from a series of experiments that allow us to measure overbidding and, in particular, underbidding in first-price auctions. We investigate the extent to which the amount of underbidding depends on the seemingly innocuous parameters of the experimental setup. To structure our data, we present and test a theory that introduces constant markdown bidders into a population of fully rational bidders. While a fraction of bidders in the experiment can be described by Bayesian Nash equilibrium bids, a larger fraction seems either to use constant markdown bids or to rationally optimise against a population with fully rational and boundedly rational markdown bidders.

Suggested Citation

  • Oliver Kirchkamp & J. Philipp Reiß, 2019. "Heterogeneous bids in auctions with rational and boundedly rational bidders: theory and experiment," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(4), pages 1001-1031, December.
    • Handle: RePEc:spr:jogath:v:48:y:2019:i:4:d:10.1007_s00182-019-00678-0
    DOI: 10.1007/s00182-019-00678-0
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    Cited by:

    1. Ziyi Tan & Shulin Liu, 2022. "The Generalized First- and Second-Price Auctions: Overbidding, Underbidding, and Optimal Reserve Price," Mathematics, MDPI, vol. 10(3), pages 1-15, January.
    2. Yves Breitmoser & Sebastian Schweighofer-Kodritsch, 2022. "Obviousness around the clock," Experimental Economics, Springer;Economic Science Association, vol. 25(2), pages 483-513, April.
    3. Kirchkamp, Oliver & Oechssler, Joerg & Sofianos, Andis, 2021. "The Binary Lottery Procedure does not induce risk neutrality in the Holt & Laury and Eckel & Grossman tasks," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 348-369.

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    More about this item

    Keywords

    Experiments; Auction; Bounded rationality; Overbidding; Underbidding; Markdown bidding;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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