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On Risk Aversion in Auctions

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  • Marilyn Pease
  • Mark Whitmeyer

Abstract

We provide a unifying way to analyze how risk aversion changes bidding in auctions by asking which bids become more attractive as bidders become more risk averse. In first-price auctions, under two payoff conditions--winning is never worse than the outside option, and winning with a low bid is preferable to winning only with a high bid--greater risk aversion makes high bids more appealing. In second-price auctions with a known outside option, bidding more increases risk exposure conditional on winning, so greater risk aversion favors lower bids. We show these bid-level forces translate into corresponding equilibrium comparative statics.

Suggested Citation

  • Marilyn Pease & Mark Whitmeyer, 2026. "On Risk Aversion in Auctions," Papers 2603.09683, arXiv.org.
    • Handle: RePEc:arx:papers:2603.09683
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    References listed on IDEAS

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