The Influence Of Overconfidence On Auction Market Bidding Strategy

Auction is one of the oldest and most important price discovery mechanisms.It was born from slavery in Babylon in the past more than 2700 years ago.Due to the charm of bidding process and the fair and effective bidding results,auctions have gradually been recognized and affirmed by the society.With the development and progress of human society and economy,the content and form of auctions are also enriched and renewed,keeping pace with the time.With the process of economic globalization and free trade,auction industry has been developing rapidly all over the world.Although the auction industry started late in China,it was soon accepted by the Chinese people and widely used in the actual sales and resource allocation.So far,auctions have produced various mechanisms and are applicable to most forms of commodities.Auction has a long history of application,but the study of auction theory lagged behind,until the mid-twentieth Century auction theory aroused the attention of mainstream economists.By summarizing the researches on auction theory at home and abroad,it is found that the current research on auction theory is mainly focused on the study of the design of auction mechanism and the research on the principle of auction,and mainly based on the hypothesis that the bidders are completely rational.Part of the literature explores the influence of the psychological changes on the bidding strategy under the non-rational situation of the bidders,and puts forward that the overconfidence of the bidder will have a certain influence on its bidding strategy,but how overconfidence influence the bidding strategy has not been deeply studied.This paper first introduces the overconfidence parameters into the model,and divides the bidders in the auction market into different types based on the different degree of overconfidence of the bidders,then analyzes their bidding strategies.On this basis,the emotional factors of the bidders in the auction market are considered and introduced into the utility function.By establishing the comprehensive utility function of the bidders,the influence of the overconfidence of the bidder to the optimal bidding strategy is studied and the final result of the auction is discussed under the different competitive price combinations.It is found that the overconfidence of the bidder does not directly affect the best competitive price of its own,but will influence the optimal bid price of the other competitors in the auction,thus affecting the auction.When the bidder does better in the field information extraction and judging the value of the competitors,the overconfidence has certain advantages.