Cheating in Second Price Auctions and Emotional Responses

Sharma, Shashidharan (2022): Cheating in Second Price Auctions and Emotional Responses.

Abstract

This paper aims to address a gap in literature at the intersection of cheating in auctions and emotional responses. In a second price auction with a cheating seller, we model the bidder's dislike for the possibility of cheating by drawing upon the idea of reference point-based utility. A symmetric increasing equilibrium strategy is characterised and comparative statics are analysed. A comparison of expected payoffs to honest and dishonest sellers is made. We find that if reference points are low enough then the cheating seller's payoff is lower than what a seller earns in a regular first-price auction. Our results show that even with bidders disliking cheating, honest sellers lose out due to bidders shading their bids to accommodate for the possibility of being cheated.

• Item Type: MPRA Paper
• Language: English
• Keywords: Second Price Auctions, Reference Dependence, Emotional Responses
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D89 - Other

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