Spite vs. Risk: Explaining overbidding
Oliver Kirchkamp and Wladislaw MillIn this paper we use an experiment to compare a theory of risk aversion and a theory of spite. As a workhorse we use the second-price all-pay auction and the first-price auction. Both risk and spite can be used to rationalise deviations from risk neutral equilibrium bids in auctions. We exploit that equilibrium predictions in the second-price all-pay auctions for spiteful preferences are different than those for risk averse preferences. Indeed, we find that spite is a more convincing explanation for bidding behavior in particular for the second-price all-pay auction. Not only can spite rationalise observed bids, also our measure for spite is consistent with observed bids.
JEL: C91; C72; D44; D91.
Keywords: Auction, Overbidding, Spite, Risk, Experiment
- Here is the most recent version of the working paper as of 5. May 2020.
Here are the slides for the talk.
The paper is also available as CESifo Working Paper No. 7631.
- The video instructions:
- Data and R files