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Impulse Balance Equilibrium and Feedback in First Price Auctions

  • Axel Ockenfels

    ()

  • Reinhard Selten

Experimental sealed bid first price auctions with private values in which feedback on the losing bids is provided yield lower revenues than auctions where this feedback is not given. Furthermore, bids tend to be above the equilibrium predictions for risk neutral bidders. While the latter observation has been rationalized in terms of risk aversion, rational bidding is invariant to feedback on losing bids. We propose the concept of weighted impulse balance equilibrium that is based on learning direction theory and that incorporates a concern for social comparison. The one-parameter model captures both overbidding and the feedback effect.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2002-12.

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Date of creation: Mar 2002
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Handle: RePEc:esi:discus:2002-12
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