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An Ascending Auction in the Presence of Rationality and Herd Behaviour

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  • Ricardo Gonçalves

Abstract

In this paper we analyse a common value English auction. We argue that rational bidders attempt to estimate each other’s private signals, to take advantage of the additional information disclosed through the bids. If this happens, herd behaviour might arise, because a particular bidder may have an incentive to follow his estimate of some other bidder’s signal, thus dropping his own, and staying in the auction longer than previously optimal. Acting upon beliefs might take the auction to an inefficient outcome, where the bidder who most values the good ends up not getting the object for sale.

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  • Ricardo Gonçalves, "undated". "An Ascending Auction in the Presence of Rationality and Herd Behaviour," Discussion Papers 99/8, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:99/8
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/1999/9908.pdf
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    References listed on IDEAS

    as
    1. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    2. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    3. Christopher Avery & John H. Kagel, 1997. "Second‐Price Auctions with Asymmetric Payoffs: An Experimental Investigation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 573-603, September.
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    More about this item

    Keywords

    English Auctions; Rationality; Herd Behaviour;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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