Knowing Me, Imagining You: Projection and Overbidding in Auctions

Arbeitspapier

Overbidding in auctions has been attributed to e.g. risk aversion, loser regret, level-k, and cursedness, relying on varying identifying assumptions. I argue that \"type projection\'\" organizes these findings and largely captures observed behavior. Type projection formally models that people tend to believe others have object values similar to their own - a robust psychological phenomenon that naturally applies to auctions. First, I show that type projection generates the main behavioral phenomena observed in auctions, including increased sense of competition (\"loser regret\") and broken Bayesian updating (\"cursedness\"). Second, re-analyzing data from seven experiments, I show that type projection explains the stylized facts of behavior across private and common value auctions. Third, in a structural analysis relaxing the identifying assumptions made in earlier studies, type projection consistently captures behavior best, in-sample and out-of-sample. The results reconcile bidding patterns across conditions and have implications for behavioral and empirical analyses as well as policy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 36

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Design of Experiments: Laboratory, Individual ; Auctions
• Subject: auctions ; overbidding ; projection ; risk aversion ; cursed equilibrium ; depth of reasoning

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Breitmoser, Yves
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München und Humboldt-Universität zu Berlin, Collaborative Research Center Transregio 190 - Rationality and Competition
• (where): München und Berlin
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/185706
• Last update: 10.03.2025, 11:42 AM CET