Overconfidence in Electronic Reverse Auctions

Overconfidence, which is mainly considered as a cause for the winner's curse in common value auctions, can have a significant impact on bidding behavior in auctions. This paper experimentally studies optimistic overconfidence in electronic reverse auction context. We argue that overconfidence in this context may lead to misperceptions of the bidder's own cost affecting his probability of winning. We also study interactions of overconfidence with other psychometric properties of the bidder, and the format of information presentation. The results indicate that overconfidence leads to more aggressive bidding, but the effect can be mitigated in participants with higher risk literacy.