Rationalizing (Non-)Equilibrium Bidding in Maximum-Value Auctions Without Beliefs About Others’ Behavior

28 Pages Posted: 8 Jan 2019 Last revised: 6 Jun 2019

See all articles by Paul Pezanis-Christou

Paul Pezanis-Christou

U. of Adelaide School of Economics

Hang Wu

Harbin Institute of Technology - School of Management

Date Written: April 2019

Abstract

We propose a novel approach to the modelling of second-price Maximum-Value auctions that assumes no belief about others’ behavior and no expected profit maximization. This individual decision-making model, naïve Impulse Balance Equilibrium or nIBE, deals with bidders’ anticipated regrets from winning and from losing the auction. It exploits the stochastic properties of the auction format and rationalizes: (i) Nash equilibrium bidding, (ii) (non-)monotone overbidding and (iii) fully cursed equilibrium bidding. We fit this model to the available data and find that it explains median bids better than the Nash equilibrium prediction and, overall, as well as cursed-equilibrium. Furthermore, nIBE and the noise-free variant of cursed equilibrium typically outperform HQRE models with level-k or cursed equilibrium beliefs in terms of in- and out-of-sample quartile predictions.

Keywords: Common Value Auctions, Second-Price Auctions, Maximum Value Auctions, Overbidding, Naïve Impulse Balance Equilibrium, Cursed Equilibrium, Experiments

JEL Classification: D44, C92, D03, D82

Suggested Citation

Pezanis-Christou, Paul and Wu, Hang, Rationalizing (Non-)Equilibrium Bidding in Maximum-Value Auctions Without Beliefs About Others’ Behavior (April 2019). Available at SSRN: https://ssrn.com/abstract=3301838 or http://dx.doi.org/10.2139/ssrn.3301838

Paul Pezanis-Christou (Contact Author)

U. of Adelaide School of Economics

Adelaide
Australia

Hang Wu

Harbin Institute of Technology - School of Management ( email )

Heilongjiang
China

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