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Quantal Response Equilibrium and Overbidding in First Price Auctions

By Jacob K. Goeree, Charles A. Holt and Thomas R. Palfrey

Abstract

This paper applies the quantal response equilibrium (QRE) model to study overbidding in private-values auctions. Experimental evidence shows that the prevalence of overbidding depends on the cost of overbidding relative to underbidding, as predicted theoretically. We use QRE as an error structure to estimate parameters of several competing models of overbidding. A QRE model based on risk averse bidders closely tracks the exact distribution of bids. The estimated parameters are significant and consistent across treatments

Publisher: 'Elsevier BV'
Year: 2002
OAI identifier: oai:authors.library.caltech.edu:65160
Provided by: Caltech Authors
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