Spite vs. Risk: Explaining Overbidding

73 Pages Posted: 14 May 2019

See all articles by Oliver Kirchkamp

Oliver Kirchkamp

University of Jena - Economics Department; CESifo (Center for Economic Studies and Ifo Institute)

Wladislaw Mill

University of Mannheim - Department of Economics

Date Written: 2019

Abstract

In this paper we use an experiment to compare a theory of risk aversion and a theory of spite as an explanation for overbidding in auctions. As a workhorse we use the second-price all-pay and the first-price winner-pay auction. Both risk and spite can be used to rationalize deviations from risk neutral equilibrium bids in auctions. We exploit that equilibrium predictions in the second-price all-pay auctions for spiteful preferences are different than those for risk averse preferences. Indeed, we find that spite is a more convincing explanation for bidding behavior for the second-price all-pay auction. Not only can spite rationalize observed bids, also our measure for spite is consistent with observed bids.

Keywords: auction, overbidding, spite, risk, experiment

JEL Classification: C910, C720, D440, D910

Suggested Citation

Kirchkamp, Oliver and Mill, Wladislaw, Spite vs. Risk: Explaining Overbidding (2019). CESifo Working Paper No. 7631. Available at SSRN: https://ssrn.com/abstract=3387667

Oliver Kirchkamp (Contact Author)

University of Jena - Economics Department ( email )

Carl-Zeiss-Str. 3
Jena, 07737
Germany

HOME PAGE: http://www.kirchkamp.de/

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.kirchkamp.de/

Wladislaw Mill

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

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