Understanding Overbidding in Second Price Auctions: An Experimental Study

We present results from second price private value auction (SPA) experiments where bidders may receive noisy signals about their opponents ' value. Such signals change bidders ' perception about the \strength " of their opponent, and the relationship between bidders ' perception of their opponent and overbidding provides a novel channel to understand overbidding in SPA. We found that small and medium overbids are more likely to occur when bidders perceive their rivals to have similar values, supporting a modied \joy of winning " hypothesis; but large overbids are more likely to occur when bidders believe their opponents to have much higher values, consistent with the \spite " hypothesis. We also found important roles of bounded rationality and bidder heterogeneity