EconPapers    
Economics at your fingertips  
 

An experimental study of precautionary bidding

Martin Kocher (), Julius Pahlke and Stefan Trautmann

European Economic Review, 2015, vol. 78, issue C, 27-38

Abstract: Auctions often involve goods exhibiting a common-knowledge ex-post risk. In such auctions, precautionary bidding predicts that under expected utility, DARA bidders reduce their bids by more than the appropriate risk premium. Because the degree of riskiness of an auctioned good and bidders׳ levels of risk aversion are difficult to observe in field settings, we conduct experimental auctions that allow us to identify the precautionary premium directly. We find strong evidence for precautionary bidding. The effect is robust to changes in experimental design features. Our experiment provides the first empirical demonstration of precautionary motives in a strategic setting.

Keywords: Precautionary bidding; Prudence; Auction; Experiment (search for similar items in EconPapers)
JEL-codes: C91 D44 D81 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292115000677
Full text for ScienceDirect subscribers only

Related works:
Working Paper: An Experimental Study of Precautionary Bidding (2013) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:78:y:2015:i:c:p:27-38

DOI: 10.1016/j.euroecorev.2015.04.009

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-08-08
Handle: RePEc:eee:eecrev:v:78:y:2015:i:c:p:27-38