Experimental Investigation of Overbidding in the All-Pay Auction

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Conference Contributions - Published
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University of Canterbury. Department of Economics and Finance
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2006
Authors
Lugovskyy, V.
Puzzello, D.
Tucker, S.
Abstract

Bidding behavior in all-pay auctions is well documented as deviating from the Nash predictions. In particular, there is pervasive and significant overbidding not only in terms of the aggregate groups bids being greater than the value of the prize, but also by individuals placing bids that guarantee them to earn negative profit. In this paper, we conduct a series of experiments in order to attempt to provide behavioral explanations for these bidding strategies. We find that individual agents are not especially strategically motivated, but rather we believe that non-monetary incentives play a significant role. Another critical factor in overbidding is the framing of the earnings. If earnings are presented in a positive manner instead of negatively as in the standard all-pay auction framework, then aggregate overdissipation can be eliminated in the long run.

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Lugovskyy, V., Puzzello, D., Tucker, S. (2006) Experimental Investigation of Overbidding in the All-Pay Auction. Alice Springs, Australia: Australasian Meeting of the Econometric Society 2006, 4-7 Jul 2006. Proceedings of the Econometric Society Australasian Meetings.
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