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Payoff Equivalence in Sealed Bid Auctions and the Dual Theory of Choice Under Risk

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  • Volij, Oscar

Abstract

This paper considers single item auctions in the private values framework, with buyers whose preferences satisfy the axioms of Yaari's (1987) dual theory of choice under risk. It is shown that when their valuations are independently distributed, risk averse buyers are indifferent among all the auctions contained in a large family of mechanisms that includes the standard auctions.

Suggested Citation

  • Volij, Oscar, 2002. "Payoff Equivalence in Sealed Bid Auctions and the Dual Theory of Choice Under Risk," Staff General Research Papers Archive 10129, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:10129
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    References listed on IDEAS

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    1. Segal, Uzi, 1990. "Two-Stage Lotteries without the Reduction Axiom," Econometrica, Econometric Society, vol. 58(2), pages 349-377, March.
    2. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
    3. Salo, Ahti A & Weber, Martin, 1995. "Ambiguity Aversion in First-Price Sealed-Bid Auctions," Journal of Risk and Uncertainty, Springer, vol. 11(2), pages 123-137, September.
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    8. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
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    13. Edi Karni & Zvi Safra, 1989. "Dynamic Consistency, Revelations in Auctions and the Structure of Preferences," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 421-433.
    14. Muller, Alfred, 1997. "Stop-loss order for portfolios of dependent risks," Insurance: Mathematics and Economics, Elsevier, vol. 21(3), pages 219-223, December.
    15. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
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    Cited by:

    1. , & , & ,, 2006. "Optimal auctions with ambiguity," Theoretical Economics, Econometric Society, vol. 1(4), pages 411-438, December.
    2. Volij, Oscar & Winter, Eyal, 2002. "On risk aversion and bargaining outcomes," Games and Economic Behavior, Elsevier, vol. 41(1), pages 120-140, October.
    3. Levin, Dan & Ozdenoren, Emre, 2004. "Auctions with uncertain numbers of bidders," Journal of Economic Theory, Elsevier, vol. 118(2), pages 229-251, October.
    4. Bose, Subir & Daripa, Arup, 2009. "A dynamic mechanism and surplus extraction under ambiguity," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2084-2114, September.

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