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Payoff Equivalence in Sealed Bid Auctions and the Dual Theory of Choice Under Risk

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  • Volij, Oscar

Abstract

This paper considers single item auctions in the private values framework, with buyers whose preferences satisfy the axioms of Yaari's (1987) dual theory of choice under risk. It is shown that when their valuations are independently distributed, risk averse buyers are indifferent among all the auctions contained in a large family of mechanisms that includes the standard auctions.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 10129.

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Date of creation: 01 Jan 2002
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Publication status: Published in Economics Letters 2002, vol. 76 no. 2, pp. 231-237
Handle: RePEc:isu:genres:10129

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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References

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  1. Matthews, Steven A., 1983. "Selling to risk averse buyers with unobservable tastes," Journal of Economic Theory, Elsevier, Elsevier, vol. 30(2), pages 370-400, August.
  2. Uzi Segal, 2000. "Two Stage Lotteries Without the Reduction Axiom," Levine's Working Paper Archive 7599, David K. Levine.
  3. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, Econometric Society, vol. 52(6), pages 1473-1518, November.
  4. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, Econometric Society, vol. 55(1), pages 95-115, January.
  5. Salo, Ahti A & Weber, Martin, 1995. "Ambiguity Aversion in First-Price Sealed-Bid Auctions," Journal of Risk and Uncertainty, Springer, Springer, vol. 11(2), pages 123-37, September.
  6. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers, UCLA Department of Economics 152, UCLA Department of Economics.
  7. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 633-46, May.
  8. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, American Finance Association, vol. 16(1), pages 8-37, 03.
  9. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1089-1122, September.
  10. Karni, Edi & Safra, Zvi, 1989. "Dynamic Consistency, Revelations in Auctions and the Structure of Preferences," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 56(3), pages 421-33, July.
  11. Kin Chung Lo, 1998. "Sealed bid auctions with uncertainty averse bidders," Economic Theory, Springer, Springer, vol. 12(1), pages 1-20.
  12. Karni, Edi & Safra, Zvi, 1986. "Vickrey auctions in the theory of expected utility with rank-dependent probabilities," Economics Letters, Elsevier, Elsevier, vol. 20(1), pages 15-18.
  13. Muller, Alfred, 1997. "Stop-loss order for portfolios of dependent risks," Insurance: Mathematics and Economics, Elsevier, vol. 21(3), pages 219-223, December.
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Citations

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Cited by:
  1. Volij, Oscar & Winter, Eyal, 2002. "On Risk Aversion and Bargaining Outcomes," Staff General Research Papers, Iowa State University, Department of Economics 10130, Iowa State University, Department of Economics.
  2. Subir Bose & Arup Daripa, 2007. "A Dynamic Mechanism and Surplus Extraction Under Ambiguity," Birkbeck Working Papers in Economics and Finance, Birkbeck, Department of Economics, Mathematics & Statistics 0716, Birkbeck, Department of Economics, Mathematics & Statistics.
  3. Andreas Pape & Subir Bose & Emre Ozdenoren, 2004. "Optimal auctions with ambiguity," Econometric Society 2004 North American Summer Meetings, Econometric Society 609, Econometric Society.
  4. Levin, Dan & Ozdenoren, Emre, 2004. "Auctions with uncertain numbers of bidders," Journal of Economic Theory, Elsevier, Elsevier, vol. 118(2), pages 229-251, October.

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