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

J.P. Reiss; O. Kirchkamp

doi:10.1111/j.1468-0297.2011.02455.x

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

J.P. Reiss^*, O. Kirchkamp

^*Corresponding author for this work

Microeconomics & Public Economics

Research output: Contribution to journal › Article › Academic › peer-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 language	English
Pages (from-to)	1361-1397
Number of pages	37
Journal	The Economic Journal
Volume	121
Issue number	557
DOIs	https://doi.org/10.1111/j.1468-0297.2011.02455.x
Publication status	Published - Dec 2011

Keywords

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

Access to Document

10.1111/j.1468-0297.2011.02455.x

Cite this

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title = "Out-of-equilibrium bids in first-price auctions: wrong expectations or wrong bids",

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.",

keywords = "PRIVATE-VALUE AUCTIONS, NORMAL-FORM GAMES, WINNERS CURSE, ASYMMETRIC AUCTIONS, BIDDING BEHAVIOR, STATED BELIEFS, PRICE AUCTIONS, PUBLIC-GOODS, INFORMATION, PLAY",

author = "J.P. Reiss and O. Kirchkamp",

year = "2011",

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doi = "10.1111/j.1468-0297.2011.02455.x",

language = "English",

volume = "121",

pages = "1361--1397",

journal = "The Economic Journal",

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AU - Kirchkamp, O.

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N2 - 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.

AB - 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.

KW - PRIVATE-VALUE AUCTIONS

KW - NORMAL-FORM GAMES

KW - WINNERS CURSE

KW - ASYMMETRIC AUCTIONS

KW - BIDDING BEHAVIOR

KW - STATED BELIEFS

KW - PRICE AUCTIONS

KW - PUBLIC-GOODS

KW - INFORMATION

KW - PLAY

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DO - 10.1111/j.1468-0297.2011.02455.x

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VL - 121

SP - 1361

EP - 1397

JO - The Economic Journal

JF - The Economic Journal

IS - 557

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