A pure variation of risk in first-price auctions
AbstractWe introduce a new method of varying the risk that bidders face in first-price private value auctions. We find that decreasing bidders’ risk significantly reduces the degree of overbidding relative to the risk-neutral Bayesian-Nash equilibrium prediction. This implies that risk affects bidding behavior as generally expected in auction theory. While resolving a long-standing debate on the effect of risk on auction behavior, our results give rise to a new puzzle. As risk is diminished and overbidding decreases for most of the value range, a significant degree of underbidding sets in for very low values
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 058.
Date of creation: 2006
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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
Economics (Jel: A);
Other versions of this item:
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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