Understanding Overbidding in Second Price Auctions: An Experimental Study
This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents' value. Even though theoretically such information about opponents' value has no strategic use in the SPA, it provides us with a convenient instrument to change bidders' perception about the "strength" (i.e., the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders' perception of the strength of their opponent provides the key to understand whether overbidding in second price auctions are driven by "spite" motives or by the "joy of winning." The experimental data show that bidders are much more likely to overbid, though less likely to submit large overbid, when they perceive their rivals to have similar values as their own. We argue that this empirical relationship is more consistent with a modified "joy of winning" hypothesis than with the "spite" hypothesis. However, neither of the non-standard preference explanations are able to fully explain all aspects of the experimental data, and we argue for the important role of bounded rationality. We also find that bidder heterogeneity plays an important role in explaining their bidding behavior.
|Date of creation:||Jan 2006|
|Date of revision:|
|Publication status:||Published in Economic Journal (October 2008), 118: 1572-1595|
|Contact details of provider:|| Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA|
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.yale.edu/
More information through EDIRC
|Order Information:|| Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James Andreoni & Yeon-Koo Che & Jinwoo Kim, 2005.
"Asymmetric Information about Rivals’ Types in Standard Auctions: An Experiment,"
666156000000000474, UCLA Department of Economics.
- Andreoni, James & Che, Yeon-Koo & Kim, Jinwoo, 2007. "Asymmetric information about rivals' types in standard auctions: An experiment," Games and Economic Behavior, Elsevier, vol. 59(2), pages 240-259, May.
- Andreoni,J. & Che,Y.-K. & Kim,J., 2006. "Asymmetric information about rivals' types in standard auctions : an experiment," Working papers 6, Wisconsin Madison - Social Systems.
- James Andreoni & Yeon-Koo Che & Jinwoo Kim, 2006. "Asymmetric Information about Rivals’ Types in Standard Auctions: An Experiment," Levine's Bibliography 321307000000000293, UCLA Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:cwl:cwldpp:1557. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matthew C. Regan)
If references are entirely missing, you can add them using this form.