The overbidding-myth and the underbidding-bias in first-price auctions
Experiments with first price auctions find typically a substantial amount of overbidding which is often related to risk aversion. If this could be generalised then first-price auctions should generate a higher revenue then second-price auctions. We show that at least part of this overbidding is an artefact of common experimental setups which prevents bidders from underbidding. We compare various setups and identify conditions for underbidding and overbidding and study the effect on revenue.
|Date of creation:||07 Oct 2004|
|Note:||Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.|
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Journal of Economic Behavior & Organization,
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- Güth, Werner & Ivanova-Stenzel, Radosveta & Wolfstetter, Elmar, 2001. "Bidding behavior in asymmetric auctions: An experimental study," SFB 373 Discussion Papers 2001,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Cox, James C & Smith, Vernon L & Walker, James M, 1988. "Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March. Full references (including those not matched with items on IDEAS)