Understanding overbidding in second price auctions: An experimental study

D.J. Cooper, H. Fang

Research output: Contribution to journalArticlepeer-review

86 Citations (Scopus)

Abstract

We present results from second price private value auction (SPA) experiments where bidders may receive noisy signals about their opponents' value. Such signals change bidders' perception about the 'strength' of their opponent, and the relationship between bidders' perception of their opponent and overbidding provides a novel channel to understand overbidding in SPA. We found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values, supporting a modified 'joy of winning' hypothesis but large overbids are more likely to occur when bidders believe their opponents to have much higher values, consistent with the 'spite' hypothesis.
Original languageEnglish
Pages (from-to)1572-1595
Number of pages24
JournalThe Economic Journal
Volume118
Issue number532
DOIs
Publication statusPublished - 1 Oct 2008

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