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Testing for Risk Aversion in First-Price Sealed-Bid Auctions

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  • Federico Zincenko

Abstract

We consider testing for risk aversion in first-price sealed-bid auctions with symmetricbidders and independent private values: the parameters are the bidders' utility function andvaluation distribution. First, we show that any test based on a sample of bids will generally beinconsistent and it will fail to detect any sequence of local alternatives converging to the null of riskneutrality. Second, we introduce restrictions on the parameter space, which are implied by Guerre,Perrigne, and Vuong (2009)'s exclusion restriction, and then we develop a consistent nonparametrictest that controls the limiting size and detects local alternatives at the parametric rate.

Suggested Citation

  • Federico Zincenko, 2019. "Testing for Risk Aversion in First-Price Sealed-Bid Auctions," Working Paper 6641, Department of Economics, University of Pittsburgh.
    • Handle: RePEc:pit:wpaper:6641
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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