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

Bettina Klose and Paul Schweinzer

No 97, ECON - Working Papers from Department of Economics - University of Zurich

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: 2012-11, Revised 2017-12
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: View citations in EconPapers (2)

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Related works:
Journal Article: Auctioning risk: the all-pay auction under mean-variance preferences (2022)
Working Paper: Auctioning risk: The all-pay auction under mean-variance preferences (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:097

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