Regret in auctions: theory and evidence |
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Authors: | Richard Engelbrecht-Wiggans Elena Katok |
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Institution: | (1) College of Business, University of Illinois, Urbana-Champaign, 1206 South Sixth Street, Champaign, IL 61820, USA;(2) Smeal College of Business, Penn State University, 465 Business Building, University Park, PA 16802, USA |
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Abstract: | The sealed-bid first-price auction of a single object in the case of independent privately-known values is the simplest auction
setting and understanding it is important for understanding more complex mechanisms. But bidders bid above the risk-neutral
Nash equilibrium theory prediction. The reasons for this “over bidding” remain an unsolved puzzle. Several explanations have
been offered, including risk aversion, social comparisons, and learning. We present a new explanation based on regret and
a model that explains not only the observed over bidding in sealed-bid first-price auctions, but also behavior in several
other settings that is inconsistent with risk aversion.
The authors gratefully acknowledge support from the National Science Foundation. |
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Keywords: | Auctions Competitive bidding Regret Risk-aversion Learning Experimental economics |
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