Out-of-equilibrium bids in first-price auctions: wrong expectations or wrong bids

J.P. Reiss, O. Kirchkamp

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Deviations from risk-neutral equilibrium bids in auctions can be related to inconsistent expectations with correct best replies or correct expectations but deviant best replies (e.g. because of risk aversion, regret, quantal-response mistakes). To distinguish between these two explanations, we use a novel experimental procedure and study expectations together with best replies in symmetric and asymmetric auctions. We extensively test the internal validity of this setup. We find that deviations from equilibrium bids do not seem to be because of to wrong expectations but because of deviations from a risk-neutral best reply.

Original languageEnglish
Pages (from-to)1361-1397
Number of pages37
JournalThe Economic Journal
Volume121
Issue number557
DOIs
Publication statusPublished - Dec 2011

Keywords

  • PRIVATE-VALUE AUCTIONS
  • NORMAL-FORM GAMES
  • WINNERS CURSE
  • ASYMMETRIC AUCTIONS
  • BIDDING BEHAVIOR
  • STATED BELIEFS
  • PRICE AUCTIONS
  • PUBLIC-GOODS
  • INFORMATION
  • PLAY

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