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Title:A pure variation of risk in first-price auctions PDF Logo
Authors:Kirchkamp, Oliver
Reiss, J. Philipp
Sadrieh, Abdolkarim
Issue Date:2006
Series/Report no.:Jena economic research papers 2008,024
Abstract:We introduce a new method of varying the risk that bidders face in …rst-price private value auctions. We …nd that decreasing bidders’ risk signi…cantly 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 signi…cant degree of underbidding sets in for very low values.
Subjects:risk
first-price auctions
risk-aversion
overbidding
JEL:C92
D44
Document Type:Working Paper
Appears in Collections:Jena Economic Research Papers, MPI für Ökonomik

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