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A Direct Test of Risk Aversion and Regret in First Price Sealed-Bid Auctions

Author

Listed:
  • Richard Engelbrecht-Wiggans

    (College of Business, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820)

  • Elena Katok

    (Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802)

Abstract

Why do bidders tend to bid higher than the risk-neutral Nash equilibrium in sealed-bid first price auction experiments? The effect of risk aversion has long been offered as a possible explanation. More recently, several studies proposed regret as another explanation, citing strong experimental evidence. But which effect is more important? We design an experiment to separate the effects of risk aversion from those of regret. We find overwhelming evidence in support of the regret model, and virtually no support for the constant relative risk aversion model.

Suggested Citation

  • Richard Engelbrecht-Wiggans & Elena Katok, 2009. "A Direct Test of Risk Aversion and Regret in First Price Sealed-Bid Auctions," Decision Analysis, INFORMS, vol. 6(2), pages 75-86, June.
    • Handle: RePEc:inm:ordeca:v:6:y:2009:i:2:p:75-86
    DOI: 10.1287/deca.1090.0135
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    References listed on IDEAS

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