A pure variation of risk in first-price auctions

Oliver Kirchkamp (), J. Philipp Reiss and Abdolkarim Sadrieh ()

No 58, Research Memoranda from Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization

Abstract: We introduce a new method of varying the risk that bidders face in first-price private value auctions. We find that decreasing bidders’ risk significantly reduces the degree of overbidding relative to the risk-neutral Bayesian-Nash equilibrium prediction. This implies that risk affects bidding behavior as generally expected in auction theory. While resolving a long-standing debate on the effect of risk on auction behavior, our results give rise to a new puzzle. As risk is diminished and overbidding decreases for most of the value range, a significant degree of underbidding sets in for very low values

Keywords: Economics; (Jel:; A) (search for similar items in EconPapers)
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Date: 2006
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Working Paper: A pure variation of risk in first-price auctions (2008)
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