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Getting Carried Away in Auctions as Imperfect Value Discovery

Author

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  • Eric Rasmusen

    (Indiana University)

Abstract

Bidders have to decide whether and when to incur the cost of estimating their own values in auctions. 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.

Suggested Citation

  • Eric Rasmusen, 2004. "Getting Carried Away in Auctions as Imperfect Value Discovery," Industrial Organization 0409001, EconWPA.
  • Handle: RePEc:wpa:wuwpio:0409001
    Note: Type of Document - pdf; pages: 30
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0409/0409001.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    4. John Asker, 2000. "Bidding up, buying out and cooling-off: an examination of auctions with withdrawal rights," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(3), pages 585-611.
    5. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
    6. Eric Rasmusen, 2004. "When Does Extra Risk Strictly Increase the Value of Options?," Finance 0409004, EconWPA.
    7. Rasmusen Eric Bennett, 2006. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-22, November.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Rasmusen Eric Bennett, 2006. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-22, November.

    More about this item

    Keywords

    private value; auctions; behavioral; e-bay; reservation price;

    JEL classification:

    • L - Industrial Organization

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