Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices

23 Pages Posted: 23 Aug 2012

See all articles by Andreas Roider

Andreas Roider

University of Regensburg - Department of Economics and Econometrics; IZA Institute of Labor Economics

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2012

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.

Keywords: Auction theory, emotions, reserve prices

JEL Classification: D44, D81, D82

Suggested Citation

Roider, Andreas and Schmitz, Patrick W., Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices (September 2012). The Scandinavian Journal of Economics, Vol. 114, Issue 3, pp. 808-830, 2012. Available at SSRN: https://ssrn.com/abstract=2134688 or http://dx.doi.org/10.1111/j.1467-9442.2012.01709.x

Andreas Roider (Contact Author)

University of Regensburg - Department of Economics and Econometrics ( email )

Universitaetsstrasse 31
D-93040 Regensburg
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Patrick W. Schmitz

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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