Kirchkamp, Oliver Reiss, J. Philipp Sadrieh, Abdolkarim
Jena Economic Research Papers No. 2008,024
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.