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Bidding Behavior given Point and Interval Values in a Second-price Auction

  • Jason F. Shogren
  • Jason F. Shogren

Although rational choice theory presumes people have a point estimate of their willingness to pay (WTP) for a good or service, the idea of coherent arbitrariness suggests they have an interval of values. Herein we explore bidding behavior in a second-price auction in which bidders have point or interval values and point or interval bidding. We find bidders bid rationally: (i) when bidders have a point value but are asked to state an interval bid, they choose to bid as an interval with the point value as the mean of the interval; (ii) bidders who had a value interval but are asked to bid as a point estimate bid the expected value from the interval; and (iii) bidders with an interval value and who bid an interval such that expected bids equate expected values.

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Paper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 1310.

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Date of creation: 2013
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Handle: RePEc:man:sespap:1310
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