Sequential auctions with budget constraints: Evidence from fantasy basketball auction drafts

• Published in: Journal of behavioral and experimental economics Vol. 62; pp. 8 - 22
• Main Authors: Boudreau, James W., Shunda, Nicholas
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.06.2016
• Subjects: Budget constraints; Declining price anomaly; Fantasy sports; Overbidding; Sequential auctions; Underbidding; Overbidding; Underbidding; D44; Fantasy sports; Sequential auctions; Budget constraints; C93; Declining price anomaly
• ISSN: 2214-8043; 2214-8051
• DOI: 10.1016/j.socec.2016.03.002

•We study a novel auction environment: fantasy basketball auction drafts.•These are sequential auctions in which bidders have identical budget and capacity constraints.•Field evidence suggests a distinct pattern of initial overbidding followed by underbidding.•We believe that pattern could be reflective of the unique strategic environment. We study bidding behavior in sequential auctions in a unique dataset drawn from a natural field experiment: fantasy basketball auction drafts. As auctions, they are novel in that they feature publicly “recommended” but non-binding bid prices and bidders with identical budget constraints. Recommended prices prove to be reasonable forecasts of player value and bidding on average tends to follow those recommendations. Individual bidding behavior, however, follows a distinct pattern of overbidding followed by underbidding (relative to recommended value). Participants tend to overbid early, paying more than the recommended value for the first two or three players they win, irrespective of who those players are. Underbidding for the next few picks then follows, with some overbidding occurring for the last pick. This behavior suggests a new variety of declining price phenomenon which we believe is reflective of the auction environment.