Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/104329
Authors: 
Kocher, Martin G.
Pahlke, Julius
Trautmann, Stefan T.
Year of Publication: 
2010
Series/Report no.: 
Munich Discussion Paper 2010-30
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.
Subjects: 
precautionary bidding
prudence
auction
experiment
JEL: 
C91
D44
D81
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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