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Do economic agents act rationally? Empirical evidence from internet auctions

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  • Quitzau, Jörn

Abstract

As a rule, economic models assume that economic agents are rational and maximise their utility. Experimental economic research in particular attempts to verify this assumption under artificial conditions using laboratory tests. Experiment results must be carefully interpreted, as laboratory conditions often fail to fully represent reality. Internet auctions on the other hand present the possibility of observing the actual behaviour of economic agents and comparing it with theoretical expectations. The analysis of market leader eBay's auctions shows that participants behave differently not only in individual cases, as would at first be expected theoretically. Herd behaviour among the auction participants would appear to be an important explanatory factor. Closer examination reveals, however, that at least a portion of the supposed irrationality can in fact be explained by rational behaviour.

Suggested Citation

  • Quitzau, Jörn, 2004. "Do economic agents act rationally? Empirical evidence from internet auctions," Research Notes 12e, Deutsche Bank Research.
    • Handle: RePEc:zbw:dbrrns:12e
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