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A pure variation of risk in first-price auctions

Oliver Kirchkamp (), J. Philipp Reiss and Abdolkarim Sadrieh ()

No 2008-024, Jena Economic Research Papers from Friedrich-Schiller-University Jena

Abstract: We introduce a new method of varying the risk that bidders face in first-price private value auctions. We find that decreasing bidders' risk significantly reduces the degree of overbidding relative to the risk-neutral Bayesian-Nash equilibrium prediction. This implies that risk a?ects bidding behavior as generally expected in auction theory. While resolving a long-standing debate on the e?ect of risk on auction behavior, our results give rise to a new puzzle. As risk is diminished and overbidding decreases for most of the value range, a significant degree of underbidding sets in for very low values.

Keywords: risk; fist-price auctions; risk-aversion; overbidding (search for similar items in EconPapers)
JEL-codes: C92 D44 (search for similar items in EconPapers)
Date: 2008-03-19
New Economics Papers: this item is included in nep-gth and nep-upt
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Working Paper: A pure variation of risk in first-price auctions (2006) Downloads
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