Projection of Private Values in Auctions | Zendy

Tristan Gag-Bartsch | Zendy; Marco Pagnozzi | Zendy; Antonio Rosato | Zendy

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Projection of Private Values in Auctions

Author(s) -

Tristan Gag-Bartsch,

Marco Pagnozzi,

Antonio Rosato

Publication year - 2021

Publication title -

american economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 16.936

H-Index - 297

eISSN - 1944-7981

pISSN - 0002-8282

DOI - 10.1257/aer.20200988

Subject(s) - common value auction , economics , allocative efficiency , projection (relational algebra) , microeconomics , bidding , competition (biology) , value (mathematics) , private information retrieval , mathematics , statistics , ecology , algorithm , biology

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. (JEL D11, D44, D82, D83)

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