Abstract
In this paper I analyze model of rational behavior of bidders taking part in penny auctions. I calibrate my model with parameters from actual auctions, I solve it for equilibria using numerical methods, and I run Monte Carlo simulations in order to get distribution of number of bids placed in an auction. As it turns out, the empirical distribution of bids does not match the simulated distribution of bids. The former stochastically dominates the latter. Average number of bids is on average much higher that theory predicts. There is a number of possible explanation why behavior of bidders does not conform to the model based on their rationality. One is that players are not risk-neutral. Another potential explanation is that players do not have perfect information.
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