Understanding Overbidding in Second Price Auctions: An Experimental Study

Authors: Cooper, David J.¹; Fang, Hanming²

Source: The Economic Journal, Volume 118, Number 532, October 2008 , pp. 1572-1595(24)

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Abstract:

We present results from second price private value auction (SPA) experiments where bidders may receive noisy signals about their opponents' value. Such signals change bidders' perception about the `strength' of their opponent, and the relationship between bidders' perception of their opponent and overbidding provides a novel channel to understand overbidding in SPA. We found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values, supporting a modified `joy of winning' hypothesis but large overbids are more likely to occur when bidders believe their opponents to have much higher values, consistent with the `spite' hypothesis.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1468-0297.2008.02181.x

Affiliations: 1: Florida State University 2: Duke University, SHUFE and CEMA

Publication date: 2008-10-01