Working Paper: NBER ID: w13699
Authors: Young Han Lee; Ulrike Malmendier
Abstract: We employ a novel approach to identify overbidding in the field. We compare auction prices to fixed prices for the same item on the same webpage. In detailed board-game data, 42 percent of auctions exceed the simultaneous fixed price. The result replicates in a broad cross-section of auctions (48 percent). A small fraction of overbidders, 17 percent, suffices to generate the overbidding. The observed behavior is inconsistent with rational behavior, even allowing for uncertainty and switching costs, since also the expected auction price exceeds the fixed price. Limited attention to outside options is most consistent with our results.
Keywords: Overbidding; Auctions; Behavioral Economics
JEL Codes: D02; D12; D44; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| overbidding is prevalent (D44) | 42% of auctions exceed the fixed price (D44) |
| overbidding by more than 10% (D44) | 27% of auctions (D44) |
| overbidding by more than 20% (D44) | 16% of auctions (D44) |
| overbidding is inconsistent with rational behavior (D44) | expected auction price exceeds the fixed price (D44) |
| limited attention to outside options (D91) | observed overbidding (D44) |
| a small fraction of overbidders (D44) | significant overbidding (D44) |
| utility from winning (L97) | overbidding (D44) |
| limited attention (D91) | overbidding (D44) |