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Comparing Auctions for Risk Averse Buyers: A Buyer's Pointof View

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  • Steven A. Matthews

Abstract

Buyer's preferences over auctions depend on their measure of absolute risk aversion. If it is constant and they have independent private values, they are indifferent between a first-price auction (FPA), a second-price auction (SPA), and a first-price auction in which the number of bidders is revealed before bids are taken (FPA- R). If they have decreasing absolute risk aversion, they prefer the SPA to the FPA-R to the FPA. Their preference for the SPA is diminished to the extent that their values are affiliated. Affiliation also causes them to prefer the number of bidders to be revealed, whereas the seller then prefers to keep it secret. Copyright 1987 by The Econometric Society.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 664R.

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Date of creation: Oct 1985
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Handle: RePEc:nwu:cmsems:664r

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  1. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
  2. J. Riley & E. Maskin, 1981. "Optimal Auctions with Risk Averse Buyers," Working papers 311, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Steven A. Matthews, 1981. "Selling to Risk Averse Buyers with Unobservable Tastes," Discussion Papers 480S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October.
  6. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  7. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
  8. Moore, John, 1984. "Global Incentive Constraints in Auction Design," Econometrica, Econometric Society, vol. 52(6), pages 1523-35, November.
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