Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185706
Authors: 
Breitmoser, Yves
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper No. 36
Abstract: 
Overbidding in auctions has been attributed to e.g. risk aversion, loser regret, level-k, and cursedness, relying on varying identifying assumptions. I argue that \"type projection\'\" organizes these findings and largely captures observed behavior. Type projection formally models that people tend to believe others have object values similar to their own - a robust psychological phenomenon that naturally applies to auctions. First, I show that type projection generates the main behavioral phenomena observed in auctions, including increased sense of competition (\"loser regret\") and broken Bayesian updating (\"cursedness\"). Second, re-analyzing data from seven experiments, I show that type projection explains the stylized facts of behavior across private and common value auctions. Third, in a structural analysis relaxing the identifying assumptions made in earlier studies, type projection consistently captures behavior best, in-sample and out-of-sample. The results reconcile bidding patterns across conditions and have implications for behavioral and empirical analyses as well as policy.
Subjects: 
auctions
overbidding
projection
risk aversion
cursed equilibrium
depth of reasoning
JEL: 
C72
C91
D44
Document Type: 
Working Paper

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