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Projection of Private Values in Auctions

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  • Tristan Gagnon-Bartsch
  • Marco Pagnozzi
  • Antonio Rosato

Abstract

We explore how taste projection—the tendency to overestimate how similar others' tastes are to one's own—affects bidding in auctions. In first-price auctions with private values, taste projection leads bidders to exaggerate the intensity of competition and, consequently, to overbid—irrespective of whether values are independent, affiliated, or (a)symmetric. Moreover, the optimal reserve price is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others' information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions.

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  • Tristan Gagnon-Bartsch & Marco Pagnozzi & Antonio Rosato, 2021. "Projection of Private Values in Auctions," American Economic Review, American Economic Association, vol. 111(10), pages 3256-3298, October.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:10:p:3256-98
    DOI: 10.1257/aer.20200988
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    Cited by:

    1. Mira Frick & Ryota Iijima & Yuhta Ishii, 2018. "Dispersed Behavior and Perceptions in Assortative Societies," Cowles Foundation Discussion Papers 2128R2, Cowles Foundation for Research in Economics, Yale University, revised Oct 2021.
    2. Gretschko, Vitali & Mass, Helene, 2024. "Worst-case equilibria in first-price auctions," Theoretical Economics, Econometric Society, vol. 19(1), January.
    3. Giacomo Rubbini, 2023. "Mechanism Design without Rational Expectations," Papers 2305.07472, arXiv.org, revised Nov 2023.
    4. Ollar, Mariann & Penta, Antonio, 2024. "Incentive Compatibility and Belief Restrictions," TSE Working Papers 24-1558, Toulouse School of Economics (TSE).

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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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