Level-k Auctions: Can Boundedly Rational Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?

摘要

This paper proposes a structural nonequilibrium model of initial responses toincomplete-information games based on “level-k” thinking, which describes behaviorin many experiments with complete-information games.We derive the model’s implicationsin first- and second-price auctions with general information structures, comparethem to equilibrium and Eyster and Rabin’s (2005) “cursed equilibrium,” and evaluatethe model’s potential to explain nonequilibrium bidding in auction experiments. Thelevel-k model generalizes many insights from equilibrium auction theory. It allows aunified explanation of the winner’s curse in common-value auctions and overbidding inthose independent-private-value auctions without the uniform value distributions usedin most experiments.