We explore how taste projection—the tendency to overestimate how similar others' tastes are to one's own—affects bidding in auctions. In first-price auctions with private values, taste projection leads bidders to exaggerate the intensity of competition and, consequently, to overbid—irrespective of whether values are independent, affiliated, or (a)symmetric. Moreover, the optimal reserve price is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others' information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions.

Projection of Private Values in Auctions / Gagnon-Bartsch, Tristan; Pagnozzi, Marco; Rosato, Antonio. - In: THE AMERICAN ECONOMIC REVIEW. - ISSN 0002-8282. - 101:10(2021), pp. 3256-3298. [10.1257/aer.20200988]

Projection of Private Values in Auctions

Marco Pagnozzi;Antonio Rosato
2021

Abstract

We explore how taste projection—the tendency to overestimate how similar others' tastes are to one's own—affects bidding in auctions. In first-price auctions with private values, taste projection leads bidders to exaggerate the intensity of competition and, consequently, to overbid—irrespective of whether values are independent, affiliated, or (a)symmetric. Moreover, the optimal reserve price is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others' information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions.
2021
Projection of Private Values in Auctions / Gagnon-Bartsch, Tristan; Pagnozzi, Marco; Rosato, Antonio. - In: THE AMERICAN ECONOMIC REVIEW. - ISSN 0002-8282. - 101:10(2021), pp. 3256-3298. [10.1257/aer.20200988]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11588/865036
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