IDEAS home Printed from https://ideas.repec.org/p/sef/csefwp/571.html
   My bibliography  Save this paper

Projection of Private Values in Auctions

Author

Listed:

Abstract

We explore how taste projection – the tendency to overestimate how similar others’ tastes are to one’s own – affects bidding in auctions. Taste-projecting bidders underestimate the dispersion in valuations and exaggerate the intensity of competition. Consequently, they overbid in firstprice auctions – irrespective of whether values are independent, correlated, or (a)symmetrically distributed – but not in second-price auctions. Hence, first-price auctions raise more revenue. Moreover, the optimal reserve price in first-price auctions is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others’ information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions.

Suggested Citation

  • Tristan Gagnon-Bartsch & Marco Pagnozzi & Antonio Rosato, 2020. "Projection of Private Values in Auctions," CSEF Working Papers 571, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:571
    as

    Download full text from publisher

    File URL: http://www.csef.it/WP/wp571.pdf
    Download Restriction: no

    More about this item

    Keywords

    Auctions; Projection Bias; False-Consensus Effect; Overbidding.;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sef:csefwp:571. 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: (Lia Ambrosio). General contact details of provider: http://edirc.repec.org/data/cssalit.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.