Auction fever : theory and experimental evidence


Ehrhart, Karl-Martin ; Ott, Marion ; Abele, Susanne


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URL: http://ub-madoc.bib.uni-mannheim.de/2316
URN: urn:nbn:de:bsz:180-madoc-23163
Document Type: Working paper
Year of publication: 2008
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: D44 C91 C92 D03 ,
Subject headings (SWD): Auktion , Zahlungsbereitschaft , Sozialpsychologie , Test , Auktionstheorie
Individual keywords (German): endowment effect
Keywords (English): auction fever , auction experiment , pseudo-endowment effec
Abstract: It is not a secret that certain auction formats yield on average higher prices than others. The phenomenon that dynamic auctions are more likely to elicit higher bids than static one-shot auctions is often associated with the term ''auction fever.'' On a psychological level, we consider the so-called pseudo-endowment effect as largely responsible for peoples’ tendency to submit higher bids, potentially amplified by the source-dependence effect. The phenomenon of auction fever is replicated in an experimental investigation of different auction formats within a private values framework where bidders have private but incomplete knowledge of their valuation for a hypothetical good. We suggest this assumption to be more realistic than definite private values, as assumed in the traditional IPV model. An additional experimental investigation within the traditional IPV framework does not either reveal any indication for the appearance of auction fever. On the basis of our experimental observations we present a model of reference-dependent utility theory that comprehends the phenomenon by assuming that bidders' reference points are shifted by the pseudo-endowment and the source-dependence effect.
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Ehrhart, Karl-Martin ; Ott, Marion ; Abele, Susanne (2008) Auction fever : theory and experimental evidence. Open Access [Working paper]
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