Economic Theory

, Volume 33, Issue 1, pp 81–101 | Cite as

Regret in auctions: theory and evidence

  • Richard Engelbrecht-Wiggans
  • Elena Katok


The sealed-bid first-price auction of a single object in the case of independent privately-known values is the simplest auction setting and understanding it is important for understanding more complex mechanisms. But bidders bid above the risk-neutral Nash equilibrium theory prediction. The reasons for this “over bidding” remain an unsolved puzzle. Several explanations have been offered, including risk aversion, social comparisons, and learning. We present a new explanation based on regret and a model that explains not only the observed over bidding in sealed-bid first-price auctions, but also behavior in several other settings that is inconsistent with risk aversion.


Auctions Competitive bidding Regret Risk-aversion Learning Experimental economics 

JEL Classification Numbers

D44 C91 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Becker G.M., Degroot M.H., Marschak J. (1964) Measuring utility by a single-response sequential Method. Behav Sci 9, 226–232CrossRefGoogle Scholar
  2. Bolton G., Ockenfels A. (2000) ERC: A theory of equity, reciprocity, and competition. Am Econ Rev 90(1): 166–193CrossRefGoogle Scholar
  3. Cason T.N. (1995) An experimental investigation of the seller incentives in the EPA’s emission trading auction. Am. Econ Review 85(4): 905–922Google Scholar
  4. Cox J.C., Smith V.L., Walker J.M. (1988) Theory and individual behavior of first price auctions. J Risk Uncertainty 1, 61–99CrossRefGoogle Scholar
  5. Dufwenberg M., Gneezy U. (2002) Information disclosure in auctions: and experiment. J Econ Behav Organ 48, 431–444CrossRefGoogle Scholar
  6. Engelbrecht-Wiggans R. (1989) The effect of regret on optimal bidding in auctions. Manage Sci 35(6): 685–692Google Scholar
  7. Engelbrecht-Wiggans R., Katok E. (2005) Experiments on auction valuation and endogenous entry. In: Morgan J. (eds) Experimental and Behavior Economics, Advances in Applied Microeconomics, vol. 13, Chap 7. Amsterdam, Elsevier, pp. 171–196Google Scholar
  8. Engelbrecht-Wiggans, R., Katok, E.: Regret and Feedback Information in First-Price Sealed-Bid Auctions. Penn State working paper (2006)Google Scholar
  9. Isaac R.M., James D. (2000) Just who are you calling risk averse?. J Risk Uncertainty 20: 177–187CrossRefGoogle Scholar
  10. Isaac R.M., Walker J.M. (1985) Information and conspiracy in sealed bid auctions. J Econ Behav Organ 6, 139–159CrossRefGoogle Scholar
  11. Ivanova-Stenzel R., Salmon T.C. (2004) Bidder preferences among auction institutions. Econ Enquiry 42(14): 223–236CrossRefGoogle Scholar
  12. Kagel J.H. (1995) Auctions: A Survey of Experimental Research. In: Kagel J.H. Roth A.E. (eds) The Handbook of Experimental Economics. Princeton, Princeton University Press, pp 501–585Google Scholar
  13. Kagel J.H., Levin D. (1993) Independent private value auctions: bidder behavior in first-, second-, and third- price auctions with varying number of bidders. Econ J 103, 868–879CrossRefGoogle Scholar
  14. Katok E., Roth A.E. (2004) Auctions of homogeneous goods with increasing returns: experimental comparison of alternative “Dutch” auctions. Manag Sci 50(8): 1044–1063CrossRefGoogle Scholar
  15. Keskinocak P., Tayur S. (2001) Quantitative analysis for internet-enabled supply chains. Interfaces 31(2): 70–89CrossRefGoogle Scholar
  16. Ledyard L.O., Olson M., Porter D., Swanson J.A., Torma D.P. (2002) The first use of a combined-value auction for transportation services.Interfaces 32(5): 4–12CrossRefGoogle Scholar
  17. Morgan, J., Stiglitz, K., Reis, G.: The spite motive and equilibrium behavior in auctions. Contrib Econ Anal Policy 2(1), article 5 (2003)Google Scholar
  18. Neugebauer T., Selten R. (2006) Individual behavior of first-price auctions: the importance of information feedback in computerized experimental markets. Games Econ Behav 54, 183–204CrossRefGoogle Scholar
  19. Ockenfels A., Selten R. (2005) Impulse balance equilibrium and feedback in first price auctions. Games Econ Behav 51, 155–179CrossRefGoogle Scholar
  20. Rothkopf M.H., Pekeč A., Harstad R.M. (1998) Computationally manageable combinational auctions. Manage Sci 44(8): 1131–1147CrossRefGoogle Scholar
  21. Selten R., Buchta J. (1998) Experimental sealed bid first-price auctions with directly observed bid functions. In: Budescu D. Erev I. Zwick R. (eds) Games and Human Behavior: Essays in honor of Amnon Rapoport. Mahwah, Lawrence Erlbaum Associates, pp 105–142Google Scholar
  22. Selten R., Stoeker R. (1986) End behavior in sequences of finite prisoners’ Dilemma supergames: a learning theory approach. J Econ Behav Organ 7, 47–70CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.College of BusinessUniversity of IllinoisChampaignUSA
  2. 2.Smeal College of BusinessPenn State UniversityUniversity ParkUSA

Personalised recommendations