
Abstract
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.
Item Type: | Paper |
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Keywords: | auctions; overbidding; projection; risk aversion; cursed equilibrium; depth of reasoning |
Faculties: | Economics > Collaborative Research Center Transregio "Rationality and Competition" |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | C72, C91, D44 |
URN: | urn:nbn:de:bvb:19-epub-58048-3 |
Language: | English |
Item ID: | 58048 |
Date Deposited: | 27. Sep 2018, 13:56 |
Last Modified: | 04. Nov 2020, 13:37 |