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Numerical Computation of Equilibrium Bid Functions in a First-Price Auction with Heterogeneous Risk Attitudes

Mark Van Boening, Stephen Rassenti and Vernon Smith

Experimental Economics, 1998, vol. 1, issue 2, 147-159

Abstract: We use numerical methods to compute Nash equilibrium (NE) bid functions for four agents bidding in a first-price auction. Each bidder i is randomly assigned: ri ɛ [0, rmax], where 1 − ri is the Arrow-Pratt measure of constant relative risk aversion. Each ri is independently drawn from the cumulative distribution function Φ(ċ), a beta distribution on [0, rmax]. For various values of the maximum propensity to seek risk, rmax, the expected value of any bidder's risk characteristic, E(ri), and the probability that any bidder is risk seeking, P(ri > 1), we determine the nonlinear characteristics of the (NE) bid functions. Copyright Kluwer Academic Publishers 1998

Keywords: auctions; equilibrium bidding; numerical analysis (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1023/A:1009992209358

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