This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via Google Scholar Google Scholar Articles by Engelbrecht-Wiggans, R. Articles by Katok, E. Search for Related Content

Regret and Feedback Information in First-Price Sealed-Bid Auctions

College of Business, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820
Smeal College of Business, Penn State University, University Park, Pennsylvania 16802
eplus17{at}uiuc.edu
ekatok{at}psu.edu

We investigate the effect of regret-related feedback information on bidding behavior in sealed-bid first-price auctions. Two types of regret are possible in this auction format. A winner of the auction may regret paying too much relative to the second highest bid, and a loser may regret missing an opportunity to win at a favorable price. In theory, under very general conditions, being sensitive to winning and paying too much should result in lower average bids, and being sensitive to missing opportunities to win at a favorable price should result in higher bids. For example, the U.S. Government's policy of revealing losing bids may cause regret-sensitive bidders to anticipate regret and bid conservatively, decreasing the government's revenue. We test these predictions in the laboratory and find strong support for both.

Key Words: auctions; competitive bidding; regret; learning; experimental economics
History: Received: June 19, 2006;