Vested Interest and Biased Price Estimates: Evidence from an Auction Market

This study employs a new data set from art auctions to examine the relationship between auctioneer presale price estimates and the long-term performance of artworks. We find that the price estimates for expensive paintings have a consistent upward bias over a long period of 30 years. High estimates at the time of purchase are associated with adverse subsequent abnormal returns. Moreover, the estimation error for individual paintings tends to persist over time. These results are consistent with the view that auction house price estimates are affected by agency problems and that some investors are credulous.