Auction Design in Behavioral Economics-Theoretical and Experimental Analysis of Markets and Human Nature.

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There are four basic auction formats which are known to generate the equivalent expected revenue. This revenue equivalence, however, has not been supported by laboratory experiments. We propose to solve this anomaly by introducing the possibility of buyers being reciprocally spiteful. We show that in the face of the reciprocal buyers, spiteful buyer can not make a bold overbid so that the resulted equilibrium set is efficient and much smaller with lower prices compared to the case of conventional model with self-regarding buyers. In our model, we can rank these four auction formats in terms of their performance, which is consistent with their usage frequency.