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Empirical relevance of ambiguity in first-price auctions

Gaurab Aryal (), Serafin Grundl, Dong-Hyuk Kim and Yu Zhu

Journal of Econometrics, 2018, vol. 204, issue 2, 189-206

Abstract: We study the identification and estimation of first-price auctions with independent private values if bidders face ambiguity about the valuation distribution and have maxmin expected utility. Using variation in the number of bidders we nonparametrically identify the true valuation distribution and the lower envelope of the set of prior beliefs. We also allow for CRRA and unobserved auction heterogeneity, and propose a Bayesian estimation method based on Bernstein polynomials. Monte Carlo experiments show that our estimator performs well, and incorrectly ignoring ambiguity induces bias and loss of revenue. We find evidence of ambiguity in timber auctions in the Pacific Northwest.

Keywords: First-price auction; Identification; Ambiguity aversion; Bayesian estimation (search for similar items in EconPapers)
JEL-codes: C11 C44 D44 (search for similar items in EconPapers)
Date: 2018
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Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

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