The Afternoon Effect
AbstractData from wine auctions indicates that identical products sold sequentially typically follow a decreasing pattern of prices, known as the afternoon effect. This is explained, for both first and second price auctions, by appealing to risk averse bidders. Earlier bids are then equal to expected later prices plus a risk premium associated with the risky future price. This logic rests on the assumption of nondecreasing absolute risk aversion, which is necessary for pure strategy equilibrium bidding functions to exist. This, decreasing absolute risk aversion implies ex post inefficiecny with positive probability. Data from wine auctions is used to confirm the existence of the afternoon effect.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 961.
Date of creation: Oct 1991
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Web page: http://www.kellogg.northwestern.edu/research/math/
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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NBER Working Papers
4036, National Bureau of Economic Research, Inc.
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