Heterogeneous bids in auctions with rational and boundedly rational bidders — theory and experiment
Oliver Kirchkamp and J. Philipp ReißWe present results from a series of experiments that allow us to measure overbidding and, in particular, underbidding in first-price auctions. We investigate how the amount of underbidding depends on seemingly innocent parameters of the experimental setup.
To structure our data we present and test a theory of constant markdown bids. While a fraction of bidders can be well described by Bayesian Nash equilibrium bids, a larger fraction seems to either use constant markdown bids or seems to rationally optimise against a population where some members use markdown bids and some are rational.
JEL-Classification: C92, D44
Keywords: Auction, Experiment, Overbidding, Underbidding, Risk-Aversion.
- An earlier version of this paper has been circulated under the title “The overbidding-myth and the underbidding-bias in first-price auctions”. This paper is available as SFB 504 Working Paper 04-32 as a PDF file.
- Here is a more recent version (as of August 2008).
- Here is an even more recent version (as of April 2019).
- Data and R commands.
- On 3 April 2019 the paper has been accepted for publication in the International Journal of Game Theory.