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Quantal Response Equilibrium and Overbidding in Private-Value Auctions

Goeree, Jacob K. and Holt, Charles A. and Palfrey, Thomas R. (2000) Quantal Response Equilibrium and Overbidding in Private-Value Auctions. Social Science Working Paper, 1073. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper reports the results of a private-values auction experiment in which expected costs of deviating from the Nash equilibrium bidding function are asymmetric, with the implication that upward deviations will be more likely in one treatment than in the other. Overbidding is observed in both treatments, but is more prevalent in the treatment where the costs of overbidding are lower. We specify and estimate a noisy (quantal response) model of equilibrium behavior. Estimated noise and risk aversion parameters are highly significant and consistent across treatments. The resulting two-parameter model tracks both the average bids and the distribution of bids remarkably well. Alternative explanations of overbidding are also considered. The estimates of parameters from a nonlinear probability weighting function yield a formulation that is essentially equivalent to risk aversion in this context. A model in which players experience a "joy of winning" provides a reasonable fit of the data but does significantly worse than the risk aversion model.

Item Type:Report or Paper (Working Paper)
Related URLs:
URLURL TypeDescription ItemPublished Version
Goeree, Jacob K.0000-0001-9876-3425
Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:This research was funded in part by the National Science Foundation (SBR-9818683 and SBR-9631627). Published as Goeree, J.K., Holt, C.A., & Palfrey, T.R. (2002). Quantal response equilibrium and overbidding in private-value auctions. Journal of Economic Theory, 104(1), 247-272.
Group:Social Science Working Papers
Funding AgencyGrant Number
Subject Keywords:auctions, quantal response, experiments, risk aversion
Series Name:Social Science Working Paper
Issue or Number:1073
Classification Code:JEL: C72, C92, D44
Record Number:CaltechAUTHORS:20170810-132644522
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80195
Deposited By: Jacquelyn Bussone
Deposited On:10 Aug 2017 22:10
Last Modified:22 Nov 2019 09:58

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