Heterogeneous bids in auctions with rational and boundedly rational bidders: theory and experiment

We present results from a series of experiments that allow us to measure overbidding and, in particular, underbidding in first-price auctions. We investigate the extent to which the amount of underbidding depends on the seemingly innocuous parameters of the experimental setup. To structure our data,...

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Bibliographic Details
Published in:International journal of game theory 2019-12, Vol.48 (4), p.1001-1031
Main Authors: Kirchkamp, Oliver, Reiß, J. Philipp
Format: Article
Language:English
Subjects:
Auctioning
Bayesian analysis
Behavioral/Experimental Economics
Bids
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Game Theory
Operations Research/Decision Theory
Original Paper
Social and Behav. Sciences
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Summary:We present results from a series of experiments that allow us to measure overbidding and, in particular, underbidding in first-price auctions. We investigate the extent to which the amount of underbidding depends on the seemingly innocuous parameters of the experimental setup. To structure our data, we present and test a theory that introduces constant markdown bidders into a population of fully rational bidders. While a fraction of bidders in the experiment can be described by Bayesian Nash equilibrium bids, a larger fraction seems either to use constant markdown bids or to rationally optimise against a population with fully rational and boundedly rational markdown bidders.
ISSN:0020-7276
1432-1270
DOI:10.1007/s00182-019-00678-0