Rationalizing (Non-)Equilibrium Bidding in Maximum-Value Auctions Without Beliefs About Others’ Behavior
28 Pages Posted: 8 Jan 2019 Last revised: 6 Jun 2019
Date Written: April 2019
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: Suggested Citation