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Title:An Experimental Test of Precautionary Bidding PDF Logo
Authors:Pahlke, Julius
Kocher, Martin
Trautmann, Stefan T.
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Auctions with Asymmetric Information A13-V2
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. Results are robust if we control for potentially confounding decision biases.
Subjects:auctions
precautionary bidding
experiment
JEL:C91
D44
D81
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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