Auction Fever: Theory and Experimental Evidence
It is not a secret that certain auction formats yield on average higher prices than others. The phenomenon that dynamic auctions are more likely to elicit higher bids than static one-shot auctions is often associated with the term ''auction fever.'' On a psychological level, we consider the so-called pseudo-endowment effect as largely responsible for peoples’ tendency to submit higher bids, potentially amplified by the source-dependence effect. The phenomenon of auction fever is replicated in an experimental investigation of different auction formats within a private values framework where bidders have private but incomplete knowledge of their valuation for a hypothetical good. We suggest this assumption to be more realistic than definite private values, as assumed in the traditional IPV model. An additional experimental investigation within the traditional IPV framework does not either reveal any indication for the appearance of auction fever. On the basis of our experimental observations we present a model of reference-dependent utility theory that comprehends the phenomenon by assuming that bidders' reference points are shifted by the pseudo-endowment and the source-dependence effect.
|Date of creation:||15 Dec 2008|
|Note:||Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged. We thank Giulio Bottazzi, Clemens Puppe, and Reinhard Selten for helpful comments.|
|Contact details of provider:|| Postal: D-68131 Mannheim|
Phone: (49) (0) 621-292-2547
Fax: (49) (0) 621-292-5594
Web page: http://www.sfb504.uni-mannheim.de/
More information through EDIRC
Web page: http://www.sfb504.uni-mannheim.de
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:xrs:sfbmaa:08-27. 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: (Carsten Schmidt)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.