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

Federico Zincenko

No 6641, Working Paper from Department of Economics, University of Pittsburgh

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.

Date: 2019-01
New Economics Papers: this item is included in nep-des, nep-ecm and nep-upt
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Journal Article: Testing for risk aversion in first-price sealed-bid auctions (2022)
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