Auctioning risk: the all-pay auction under mean-variance preferences

Bettina Klose () and Paul Schweinzer
Additional contact information
Bettina Klose: Purdue University

Economic Theory, 2022, vol. 73, issue 4, No 3, 916 pages

Abstract: Abstract We analyse the all-pay auction with incomplete information and variance-averse bidders. We characterise the unique symmetric equilibrium for general distributions of valuations and any number of bidders. Variance aversion is a sufficient assumption to predict that high-valuation bidders increase their bids relative to the risk-neutral case while low types decrease their bid. Considering an asymmetric two-player environment with uniformly distributed valuations, we show that a variance-averse player always bids higher than her risk-neutral opponent with the same valuation. Utilising our analytically derived bidding functions we discuss all-pay auctions with variance-averse bidders from an auction designer’s perspective. We briefly consider possible extensions of our model, including noisy signals, type-dependent attitudes towards risk, and variance-seeking preferences.

Keywords: All-pay auctions; Contests; Incomplete information; Private values; Risk-aversion; Mean-variance preferences (search for similar items in EconPapers)
JEL-codes: C7 D7 D81 L1 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s00199-020-01332-7 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Auctioning risk: The all-pay auction under mean-variance preferences (2017)
Working Paper: Auctioning risk: The all-pay auction under mean-variance preferences (2012)
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:spr:joecth:v:73:y:2022:i:4:d:10.1007_s00199-020-01332-7

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

DOI: 10.1007/s00199-020-01332-7

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().