On Risk Aversion in Auctions

Marilyn Pease and Mark Whitmeyer

Papers from arXiv.org

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.

Date: 2026-03
New Economics Papers: this item is included in nep-des, nep-gth, nep-mic and nep-upt
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