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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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  • Steven A. Matthews, 1985. "Comparing Auctions for Risk Averse Buyers: A Buyer's Pointof View," Discussion Papers 664R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:664r
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    References listed on IDEAS

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    1. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
    2. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
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