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Emprical Relevance of Ambiguity in First Price Auction Models

Author

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  • Gaurab Aryal
  • Dong-Hyuk Kim

Abstract

We study the identification and estimation of first-price auction models with independent private values where bidders are risk averse and there is ambiguity about the valuation distribution. When bidders' preferences are represented by the maxmin expected utility of [Gilboa and Schmeidler, 1989], we provide sufficient conditions for nonparametric identification of the valuation distribution and bidders' attitude toward ambiguity, separately from the risk aversion (CRRA, CARA). We propose a semi-parametric method and apply it to two datasets, one from experimental auctions and the other from USFS timber auctions. We find, for both cases, that bidders are not only risk averse but also ambiguity averse. In addition, we consider the multiplier preferences of [Hansen and Sargent, 2001] and identify the valuation distribution using the same conditions, and show that normalizing, additionally, (any) one quantile of the value, e.g. upper bound of the support, is sufficient to identify the ambiguity parameter separately from the nonparametric utility.

Suggested Citation

  • Gaurab Aryal & Dong-Hyuk Kim, 2013. "Emprical Relevance of Ambiguity in First Price Auction Models," ANU Working Papers in Economics and Econometrics 2013-607, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2013-607
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    Cited by:

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    2. Song, Yangwei, 2018. "Efficient Implementation with Interdependent Valuations and Maxmin Agents," Rationality and Competition Discussion Paper Series 92, CRC TRR 190 Rationality and Competition.
    3. Nianqing Liu & Yao Luo, 2017. "A Nonparametric Test For Comparing Valuation Distributions In First‐Price Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(3), pages 857-888, August.

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    Keywords

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    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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