Impulse Balance Equilibrium and Feedback in First Price Auctions

Experimental sealed bid first price auctions with private values in which feedback onthe losing bids is provided yield lower revenues than auctions where this feedback isnot given. Furthermore, bids tend to be above the equilibrium predictions for riskneutral bidders. While the latter observation has been rationalized in terms of riskaversion, rational bidding is invariant to feedback on losing bids. We propose theconcept of weighted impulse balance equilibrium that is based on learning directiontheory and that incorporates a concern for social comparison. The one-parametermodel captures both overbidding and the feedback effect.