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Economic Theory

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

Regret in auctions: theory and evidence

  • Richard Engelbrecht-Wiggans
  • Elena Katok
Symposium

Abstract

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.

Keywords

Auctions Competitive bidding Regret Risk-aversion Learning Experimental economics 

JEL Classification Numbers

D44 C91 

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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

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

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