EconPapers    
Economics at your fingertips  
 

An Experimental Test of Precautionary Bidding

Martin Kocher (), Julius Pahlke and Stefan Trautmann

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: Auctions often involve goods exhibiting a common knowledge ex-post risk that is independent of buyers’ private values or their signals regarding common value components. Esö and White (2004) showed theoretically that ex-post risk leads to precautionary bidding for DARA bidders: Agents reduce their bids by more than their appropriate risk premium. Testing precautionary bidding with data from the field seems almost impossible. We conduct experimental first-price auctions that allow us to directly identify the precautionary premium and find clear evidence for precautionary bidding. Bidders are significantly better off when a risky object rather than an equally valued sure object is auctioned. Our results are robust if we control for potentially confounding decision biases.

Keywords: precautionary bidding; prudence; auction; experiment (search for similar items in EconPapers)
JEL-codes: C91 D44 D81 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-exp, nep-gth and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://epub.ub.uni-muenchen.de/11743/1/Kocher_Pahlke_Trautmann_2010.pdf (application/pdf)

Related works:
Working Paper: An experimental test of precautionary bidding (2010) 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:lmu:muenec:11743

Access Statistics for this paper

More papers in Discussion Papers in Economics from University of Munich, Department of Economics Ludwigstr. 28, 80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Tamilla Benkelberg ().

 
Page updated 2024-01-16
Handle: RePEc:lmu:muenec:11743