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Getting Carried Away in Auctions as Imperfect Value Discovery

  • Eric Rasmusen

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Bidders in auctions must decide whether and when to incur the cost of estimating the most they are willing to pay. This can explain why people seem to get carried away, bidding higher than they had planned before the auction and then finding they had paid more than the object was worth to them. Even when such behavior is rational, ex ante, it may be perceived as irrational if one ignores other situations in which people revise their bid ceilings upwards and are happy when that enables them to win the auction.

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File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2007-05-rasmusen.pdf
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2007-05.

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Date of creation: 2007
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Handle: RePEc:iuk:wpaper:2007-05
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  1. Rasmusen Eric Bennett, 2001. "Explaining Incomplete Contracts as the Result of Contract-Reading Costs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 1(1), pages 1-39, October.
  2. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
  3. Jeremy Bulow & Paul Klemperer, 2002. "Prices and the Winner's Curse," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 1-21, Spring.
  4. Eric Rasmusen, 2004. "When Does Extra Risk Strictly Increase the Value of Options?," Finance 0409004, EconWPA.
  5. Eric Rasmusen, 2004. "Strategic Implications of Uncertainty Over One’s Own Private Value in Auctions," Working Papers 2004-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  6. John Asker, 2000. "Bidding up, buying out and cooling-off: an examination of auctions with withdrawal rights," Economic Theory, Springer, vol. 16(3), pages 585-611.
  7. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
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