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Reference Dependent Preferences And Overbidding In Private And Common Value Auctions
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Book Synopsis Reference Dependent Preferences and Overbidding in Private and Common Value Auctions by : Mariano Runco
Download or read book Reference Dependent Preferences and Overbidding in Private and Common Value Auctions written by Mariano Runco and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a tractable model of reference dependent preferences to explain overbidding in private and common value auctions. It is assumed that the reference point is proportional to the value of the object and that losses are weighed more heavily than gains in the utility function. Equilibrium bidding strategies are derived for first- and second-price private and common value auctions. It is found that this model fits the data of all experiments analyzed better than a standard risk neutral model; moreover, it explains overbidding in private value auctions better than other alternatives. These results suggest that reference dependence, among other factors, might play a role in the widespread tendency of subjects to overbid in most experimental auctions.
Book Synopsis The Role of Reference-Dependent Preferences in Auctions and Negotiations by : Antonio Rosato
Download or read book The Role of Reference-Dependent Preferences in Auctions and Negotiations written by Antonio Rosato and published by . This book was released on 2013 with total page 250 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters exploring the role that reference-dependent preferences and loss aversion play in auctions and negotiations. The first chapter characterizes the profit-maximizing pricing and product-availability strategies for a retailer selling two substitute goods to loss-averse consumers, showing that limited-availability sales can manipulate consumers into an ex-ante unfavorable purchase. When the products have similar social value, the seller maximizes profits by raising the consumers' reference point through a tempting discount on a good available only in limited supply (the bargain) and cashing in with a high price on the other good (the rip-off), which the consumers buy if the bargain is not available to minimize their disappointment. The price difference between the bargain and the rip-off is larger when the products are close substitutes than when they are distant substitutes; hence dispersion in prices and dispersion in consumers' valuations are inversely related. The seller might prefer to offer a deal on the more valuable product, using it as a bait, because consumers feel a larger loss, in terms of forgone consumption, if this item is not available and are hence willing to pay a larger premium to reduce the uncertainty in their consumption outcomes. I also show that the bargain item can be a loss leader, that the seller's product line is not welfare-maximizing and that she might supply a socially wasteful product. The second chapter studies sequential first-price and second-price auctions when bidders are expectations-based loss-averse. A large body of empirical research in auctions documents that prices of identical products sold sequentially tend to decline across auctions (a phenomenon which has been dubbed "declining price anomaly" or "afternoon effect", as often later auctions take place in the afternoon whereas the first ones usually take place in the morning) . In this chapter I argue that expectations-based reference-dependent preferences and loss aversion provide an alternative, preference-based, explanation for the afternoon effect observed in sequential auctions. First, I show that when bidders have reference-dependent preferences, the equilibrium bidding functions are history-dependent, even if bidders have independent private values. The reason is that learning the type of the winner in the previous auction modifies a bidder's expectations about how likely he is to win in the current auction; and since expectations are the reference point, the optimal bid in each round is affected by this learning effect. More precisely, I identify what I call a "discouragement effect": the higher the type of the winner in the first auction is, the less aggressively the bidding behavior of the remaining bidders in the second auction. This discouragement effect in turn pushes bidders to bid more aggressively in the earlier auction. Moreover, the uncertainty about future own bids, due to the history-dependence of the equilibrium strategies, generates a precautionary bidding effect that pushes bidders to bid less aggressively in the first auction. The precautionary bidding effect and the anticipation of the discouragement effect go in opposite directions; when the latter effect is stronger, a declining price path arises in equilibrium. The third chapter studies the role of expectations-based reference-dependent preferences and loss aversion in a sequential bargaining game with one-sided incomplete information between a seller who makes all the offers and a buyer. I show that loss aversion eases the rent-efficiency trade-off for the seller who can now serve a larger measuer of consumers at an earlier stage. Thus, in equilibrium the seller achieves higher profits and we have less delay with loss aversion than without it. Furthermore, I also show that, besides increasing the seller's profit and overall trade efficiency, loss aversion also reallocates surplus among consumers by increasing the equilibrium payoff of some low-valuation buyers and decreasing that of high-valuation ones.
Book Synopsis Auctions with a Buy Price by : Nicholas Shunda
Download or read book Auctions with a Buy Price written by Nicholas Shunda and published by . This book was released on 2007 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an auction with a buy price, the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price. The Buy-It-Now option on eBay is a leading example of an auction with a buy price. This paper develops a model of an auction with a buy price in which bidders use the auction's reserve price and buy price to formulate a reference price. The model both explains why a revenue-maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders' reference price through the auction's reserve price and buy price than when she can affect the bidders' reference price through the auction's reserve price only. Introducing a small reference-price effect can shrink the range of buy prices bidders are willing to exercise. The comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction's buy price have no effect on bidding behavior.
Book Synopsis Common Value Auctions and the Winner's Curse by : John H. Kagel
Download or read book Common Value Auctions and the Winner's Curse written by John H. Kagel and published by Princeton University Press. This book was released on 2021-04-13 with total page 419 pages. Available in PDF, EPUB and Kindle. Book excerpt: An invaluable account of how auctions work—and how to make them work Few forms of market exchange intrigue economists as do auctions, whose theoretical and practical implications are enormous. John Kagel and Dan Levin, complementing their own distinguished research with papers written with other specialists, provide a new focus on common value auctions and the "winner's curse." In such auctions the value of each item is about the same to all bidders, but different bidders have different information about the underlying value. Virtually all auctions have a common value element; among the burgeoning modern-day examples are those organized by Internet companies such as eBay. Winners end up cursing when they realize that they won because their estimates were overly optimistic, which led them to bid too much and lose money as a result. The authors first unveil a fresh survey of experimental data on the winner's curse. Melding theory with the econometric analysis of field data, they assess the design of government auctions, such as the spectrum rights (air wave) auctions that continue to be conducted around the world. The remaining chapters gauge the impact on sellers' revenue of the type of auction used and of inside information, show how bidders learn to avoid the winner's curse, and present comparisons of sophisticated bidders with college sophomores, the usual guinea pigs used in laboratory experiments. Appendixes refine theoretical arguments and, in some cases, present entirely new data. This book is an invaluable, impeccably up-to-date resource on how auctions work--and how to make them work.
Book Synopsis Auctions with a Buy Price by : Nicholas Shunda
Download or read book Auctions with a Buy Price written by Nicholas Shunda and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an auction with a buy price, the seller provides bidders with an option to end the auction early by accepting a transaction at a posted price. This paper develops a model of an auction with a buy price in which bidders use the auction's reserve price and buy price to formulate a reference price. The model both explains why a revenue-maximizing seller would want to augment her auction with a buy price and demonstrates that the seller sets a higher reserve price when she can affect the bidders' reference price through the auction's reserve price and buy price than when she can affect the bidders' reference price through the auction's reserve price only. The comparative statics properties of bidding behavior are in sharp contrast to equilibrium behavior in other models where the existence and size of the auction's buy price have no effect on bidding behavior.
Book Synopsis Comment On: "Auctions with a Buy Price: the Case of Reference-dependent Preferences" by : Ángel Hernando-Veciana
Download or read book Comment On: "Auctions with a Buy Price: the Case of Reference-dependent Preferences" written by Ángel Hernando-Veciana and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Do Auction Bids Betray Expectations-based Reference Dependent Preferences? by : A. Banerji
Download or read book Do Auction Bids Betray Expectations-based Reference Dependent Preferences? written by A. Banerji and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Essays in Behavioral Economics by : Peter McGee
Download or read book Essays in Behavioral Economics written by Peter McGee and published by . This book was released on 2011 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Behavioral economics is the branch of the discipline that attempts to incorporate and explain data that appear to be at odds with traditional economic theory by appealing to psychological and cognitive phenomena. This dissertation addresses consumer decision making in various settings and examines the effects of factors outside the scope of standard economic models. Chapter 1 looks at the effect of an individual uncertainty over what a good is worth to them in the context of an auction. In a laboratory experiment with uncertainty over final values, 28% and 17% percent of bids in private-value English and first-price auctions, respectively, were above the subject's expected value of item - - behavior that cannot be explained by risk preferences. In both auction formats, a subset of bidders repeatedly bids above the expected value of the item. Prices in English are 13% percentage points higher in auctions with more than one bidder making bids at odds with elicited risk preferences ("overbidders") than in auctions with no bidders making such bids, but there are no differences between the prices in first-price auctions with different numbers of overbidders. In contrast to earlier findings with certain values, the revenues in English and first-price auctions with more than one overbidder are not statistically different from one another. Chapter 2 examines the impact of theoretically unimportant incentives on auction behavior. Bidding one's value in a second-price, private-value auction is a dominant solution (Vickrey, 1961). However, repeated experimental studies find much more overbidding than underbidding, resulting in overbidding on average. Our experimental work introduces manipulations against which the dominant strategy is immune, yet they affect bidding in a predictable way. Our finding suggests that although subjects fail to discover the dominant strategy, they nevertheless respond sensibly to the "steepness" of payoffs out of equilibrium. These results lend support to existing models such as QRE which assume that less than fully rational players will respond to out of equilibrium incentives in a systematic way, even though the full effect of our manipulations is not explained by these models. We suggest a new model that can explain these results. Chapter 3 delves search behavior. That consumers search more in response to an increase in prices than to a decrease in prices has been documented and motivated a great deal of theoretical research. Models generating this asymmetric consumer search do so by assuming imperfect consumer information about the price distribution and/or heterogeneous costs of search. I demonstrate that such assumptions are unnecessary by showing that subjects search asymmetrically after price distribution shifts in a laboratory experiment in which subjects know the price distribution and face a common cost of search. Subjects who experience an upward shift in the price distribution are 6 percentage points more likely to search than subjects who experience either no shift in prices or a downward shift. An alternative model of reference-dependent preferences in which consumers view potential purchases as "losses" or "gains" relative to a reference price generates asymmetric search.
Book Synopsis Second-price Common Value Auctions with Uncertainty, Private and Public Information by : Isabelle Brocas
Download or read book Second-price Common Value Auctions with Uncertainty, Private and Public Information written by Isabelle Brocas and published by . This book was released on 2015 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We conduct a laboratory experiment of second-price sealed bid auctions of a common value good with two bidders. Bidders face three different types of information: common uncertainty (unknown information), private information (known by one bidder) and public information (known by both bidders), and auctions differ on the relative importance of these three types of information. We find that subjects differentiate insufficiently between private and public information and deviate from the theoretical predictions with respect to all three types of information. There is under-reaction to both private and public information and systematic overbidding in all auctions above and beyond the standard winner's curse. The Cursed Equilibrium and Level-k models successfully account for some features of the data but others remain unexplained.
Author :Harry J. Paarsch Publisher :Department of Economics, University of British Columbia ISBN 13 : Total Pages :40 pages Book Rating :4.:/5 (319 download)
Book Synopsis Deciding Between the Common and Private Value Paradigms in Empirical Models of Auctions by : Harry J. Paarsch
Download or read book Deciding Between the Common and Private Value Paradigms in Empirical Models of Auctions written by Harry J. Paarsch and published by Department of Economics, University of British Columbia. This book was released on 1989 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asymmetric Information in Common-value Auctions and Contests by : Lucas A. Rentschler
Download or read book Asymmetric Information in Common-value Auctions and Contests written by Lucas A. Rentschler and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In common-value auctions and contests economic agents often have varying levels of information regarding the value of the good to be allocated. Using theoretical and experimental analysis, I examine the effect of such information asymmetry on behavior. Chapter II considers a model in which players compete in two sequential contests. The winner of the first contest (the incumbent) privately observes the value of the prize, which provides private information if the prizes are related. Relative to the case where the prizes are independent, the incumbent is strictly better off, and the other contestants (the challengers) are strictly worse off. This increases the incentive to win the first contest such that the sum of expected effort over both contests increases relative to the case of independent prizes. Chapter III experimentally considers the role of asymmetric information in first-price, sealed-bid, common-value auctions. Bidders who observe a private signal tend to overbid relative to Nash equilibrium predictions. Uninformed bidders, however, tend to underbid relative to the Nash equilibrium. Chapter IV examines asymmetric information in one-shot common-value all-pay auctions and lottery contests from both experimental and theoretical perspectives As predicted by theory, asymmetric information yields information rents for the informed bidder in both all-pay auctions and lottery contests.
Book Synopsis Putting Auction Theory to Work by : Paul Milgrom
Download or read book Putting Auction Theory to Work written by Paul Milgrom and published by Cambridge University Press. This book was released on 2004-01-12 with total page 378 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a comprehensive introduction to modern auction theory and its important new applications. It is written by a leading economic theorist whose suggestions guided the creation of the new spectrum auction designs. Aimed at graduate students and professionals in economics, the book gives the most up-to-date treatments of both traditional theories of 'optimal auctions' and newer theories of multi-unit auctions and package auctions, and shows by example how these theories are used. The analysis explores the limitations of prominent older designs, such as the Vickrey auction design, and evaluates the practical responses to those limitations. It explores the tension between the traditional theory of auctions with a fixed set of bidders, in which the seller seeks to squeeze as much revenue as possible from the fixed set, and the theory of auctions with endogenous entry, in which bidder profits must be respected to encourage participation.
Book Synopsis Computationally Convenient Distributional Assumptions for Common Value Auctions by : Michael B. Gordy
Download or read book Computationally Convenient Distributional Assumptions for Common Value Auctions written by Michael B. Gordy and published by . This book was released on 1997 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Auctions of Identical Objects with Single-unit Demands by : Flavio M. Menezes
Download or read book Auctions of Identical Objects with Single-unit Demands written by Flavio M. Menezes and published by . This book was released on 1999 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Private Information Revelation in Common-Value Auctions by : Vlad Mares
Download or read book Private Information Revelation in Common-Value Auctions written by Vlad Mares and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: When a seller has information that could help bidders to estimate asset value, a dictum of auction theory has been that all such information should be publicly announced to bidders. The possibility of privately revealing this information to one or more bidders is introduced. Seller in some circumstances may attain higher expected revenue through revealing his information privately. Examples show that the role of private revelation is more complex than simply generating bidder asymmetry.
Book Synopsis Private Value Perturbations and Informational Advantage in Common Value Auctions by : Nathan Larson
Download or read book Private Value Perturbations and Informational Advantage in Common Value Auctions written by Nathan Larson and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the value of being better informed than one's rival in a two bidder, second price common value auction. Standard models of these auctions do not pin down relative bidding postures, making analysis difficult. We show that by adding small amounts of private value information, a unique equilibrium can be restored. Additional common value information affects a bidder's payoff both directly, by increasing his information rent, and indirectly, by shifting the relative bidding posture of his opponent. Although the latter effect need not be positive, we establish broad conditions under which bidders with more information do better than their rivals. We turn to information acquisition and release and show that the desire to influence relative bidding postures can lead sellers to create new information rents (by releasing information privately to only one bidder) and bidders to forego information rents (instead choosing to gather information that a rival already has).
Book Synopsis Non-equivalence of English and Second-price Auctions by : Soo Hong Chew
Download or read book Non-equivalence of English and Second-price Auctions written by Soo Hong Chew and published by . This book was released on 1994 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
