Scandinavian Working Papers in Economics

Umeå Economic Studies,
Umeå University, Department of Economics

No 899: It’s All in the Interval - An imperfect measurements approach to estimate bidders’ primitives in auctions

David Sundström ()
Additional contact information
David Sundström: Department of Economics, Umeå School of Business and Economics, Postal: Umeå University, S 901 87 Umeå, Sweden

Abstract: A novel method to measure bidders’ costs (valuations) in descending (ascending) auctions is introduced. Based on two bounded rationality constraints bidders’ costs (valuations) are given an imperfect measurements interpretation that is robust to behavioral deviations from the traditional rationality assumptions. Theory provides no guidance as to the shape of the cost (valuation) distributions while empirical evidence suggests them to be positively skew. Consequently, a flexible distribution is employed in an imperfect measurements framework. An illustration of the proposed method on Swedish public procurement data is provided along with a comparison to a traditional Bayesian Nash Equilibrium approach.

Keywords: log-generalized gamma distribution; latent variable; maximum likelihood; prediction; public procurement

JEL-codes: C24; C51; D22; D44

16 pages, First version: November 13, 2014. Revised: June 17, 2016. Earlier revisions: October 5, 2015.

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