I think the reasoning is that people are irrational, and people don't actually have "hard limits' so others will bid in increments to exceed it. So in aggregate you will end up hitting your max more often because of others' irrationality than if it was a sealed auction and you don't give them that chance.

People also will often have a "hard at the time" limit that turns out to be very soft when they realise other people also wants the same thing.

A bidding war can make the perceived value of an item increase.

This is my point. If you look at the actual behavior and read people's comments in forums you'll see that almost no one sticks to their "hard limit". Including me!

People's competitive behavior, or "you're not taking this from me," or "I've definitely got this item and have made plans" or any number of other emotional behaviors take over.

People's railing against sniping also demonstrates this.