Abstract:

This paper applies the quantal response equilibrium (QRE) model to study overbidding in private-values auctions. Experimental evidence shows that the prevalence of overbidding depends on the cost of overbidding relative to underbidding, as predicted theoretically. We use QRE as an error structure to estimate parameters of several competing models of overbidding. A QRE model based on risk averse bidders closely tracks the exact distribution of bids. The estimated parameters are significant and consistent across treatments. Journal of Economic Literature Classification Numbers: C72, C92, D44. © 2002 Elsevier Science (USA).

Keywords: auctions; quantal response; experiments; risk aversion

Language: English

Document Type: Research article

Affiliations: 1: Department of Economics, University of Virginia 2: Division of Humanities and Social Sciences, California Institute of Technology