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Behavioral models for first-price sealed-bid auctions with the one-shot decision theory

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  • Wang, Chao
  • Guo, Peijun

Abstract

We build an auction model with the one-shot decision theory which describes the process of a bidder deciding his/her bidding price in first-price sealed-bid auctions. The decision making procedure involves two steps: First, for each of his/her possible bidding prices, the bidder examines every possible highest bidding price provided by the other bidders and chooses one as a focus point of this bidding price of him/her. Then, the bidder determines such a bidding price as the optimal one that generates the best outcome when its focus point occurs. The optimal bidding price can be obtained and two common phenomena in auction markets: throwing away and overbidding are well explained.

Suggested Citation

  • Wang, Chao & Guo, Peijun, 2017. "Behavioral models for first-price sealed-bid auctions with the one-shot decision theory," European Journal of Operational Research, Elsevier, vol. 261(3), pages 994-1000.
    • Handle: RePEc:eee:ejores:v:261:y:2017:i:3:p:994-1000
    DOI: 10.1016/j.ejor.2017.03.024
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