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Quantal response and nonequilibrium beliefs explain overbidding in maximum-value auctions

Camerer, Colin and Nunnari, Salvatore and Palfrey, Thomas R. (2016) Quantal response and nonequilibrium beliefs explain overbidding in maximum-value auctions. Games and Economic Behavior, 98 . pp. 243-263. ISSN 0899-8256. doi:10.1016/j.geb.2016.06.009.

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We report new experimental data on a simple common value auction to investigate the extent to which bidding can be explained by logit QRE, in combination with different models about bidder beliefs: cursed equilibrium, level-k, and cognitive hierarchy. There is a close correspondence between the predicted bidding patterns in those models and the distribution of observed bids. The pattern of median bids in the data consists of a combination of overbidding with low signals, and near-value-bidding with higher signals. Logit QRE with heterogeneous bidders approximates this pattern. Combining QRE with any of the other models of belief formation leads to a closer match with the data. All the estimated models predict only small treatment effects across different versions of the game, consistent with the data. We also reanalyze an earlier dataset for the same game (Ivanov et al., 2010), which exhibited much more overbidding, and reach similar qualitative conclusions.

Item Type:Article
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URLURL TypeDescription ItemWorking Paper
Camerer, Colin0000-0003-4049-1871
Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:© 2016 Elsevier Inc. Received 16 February 2015, Available online 7 July 2016. We are grateful for comments from seminar audiences at the 2010 North-American ESA Meeting in Tucson, the Security Market Auctions and IPOs Conference at Northwestern University, the University of Southern California, and Stanford University. We thank Asen Ivanov, Dan Levin, and Muriel Niederle for sharing their data and for detailed comments on an earlier draft. We are also grateful for helpful comments and suggestions from the referees and editor. Palfrey gratefully acknowledges the financial support of the National Science Foundation (SES-1426560), the Gordon and Betty Moore Foundation (SES-1158), and the Russell Sage Foundation.
Funding AgencyGrant Number
Gordon and Betty Moore FoundationUNSPECIFIED
Russell Sage FoundationUNSPECIFIED
Subject Keywords:Auctions; Common-value; QRE; Experiment; Estimation
Classification Code:JEL classification: C92; D44
Record Number:CaltechAUTHORS:20160930-133028251
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Official Citation:Colin Camerer, Salvatore Nunnari, Thomas R. Palfrey, Quantal response and nonequilibrium beliefs explain overbidding in maximum-value auctions, Games and Economic Behavior, Volume 98, July 2016, Pages 243-263, ISSN 0899-8256, (
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:70704
Deposited By: Ruth Sustaita
Deposited On:30 Sep 2016 21:50
Last Modified:11 Nov 2021 04:33

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