Projection of Private Values in Auctions

We explore how taste projection—the tendency to overestimate similar others’ tastes are one’s own—affects bidding in auctions. In first-price auctions with private values, projection leads bidders exaggerate the intensity of competition and, consequently, overbid—irrespective whether values independent, affiliated, or (a)symmetric. Moreover, optimal reserve price is lower than rational benchmark, and decreasing extent number bidders. With an uncertain common-value component, projecting draw distorted inferences about information. This misinference stronger second-price English auctions, reducing their allocative efficiency compared (JEL D11, D44, D82, D83)