American Economic Review Vol. 97 No. 4 2007

Auctions with Anticipated Regret: Theory and Experiment

Emel Filiz-Ozbay¹; Erkut Y. Ozbay²

¹ Department of Economics, Columbia University, 1022 IAB, 420 W. 118th Street New York, NY 10027. · ² Department of Economics, New York University, 19 West 4th Street New York, NY 10012.

Abstract

This paper demonstrates theoretically and experimentally that in first-price auctions overbidding with respect to the risk neutral Nash equilibrium might be driven from anticipated loser regret (felt when bidders lose at an affordable price). Different information structures are created to elicit regret: bidders know they will learn the winning bid if they lose (loser regret condition); or the second-highest bid if they win (winner regret condition); or they will receive no feedback regarding the other bids. Bidders in loser regret condition anticipated regret and significantly overbid. However, bidders in the winner regret condition did not anticipate regret.

DOI

10.1257/aer.97.4.1407

Volume

97

Issue

4

Pages

1407-1418

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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