Auctions with Anticipated Emotions: Overbidding,Underbidding, and Optimal Reserve Prices* |
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Authors: | Andreas Roider Patrick W. Schmitz |
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Affiliation: | 1. University of Regensburg, DE‐93053 Regensburg, Germany andreas.roider@wiwi.uni‐regensburg.de;2. University of Cologne, DE‐50923 Cologne, Germany patrick.schmitz@uni‐koeln.de |
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Abstract: | The experimental literature has documented that there is overbidding in second‐price auctions, regardless of the valuations of bidders. In contrast, in first‐price auctions, there tends to be overbidding for large valuations, but underbidding for small valuations. We show that the experimental evidence can be rationalized by a simple extension of the standard auction model, where bidders anticipate (constant) positive or negative emotions caused by the mere fact of winning or losing. Even if the emotional (dis‐)utilities are very small, the revenue‐maximizing reserve price might be significantly different from the standard model. Moreover, decreases with the number of bidders. |
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Keywords: | Auction theory emotions reserve prices D44 D81 D82 |
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