The Prospect Theory and First Price Auctions: an Explanation of Overbidding
This paper attempted using the prospect theory to explain overbidding in first price auctions.The standard outlook in the literature on auctions is that bidders overbid, but the probability weighting functions are nonlinear as in the prospect theory, so they not only tend to underweight the probabilities of winning the auction Bosch NBS113BR0B Seri