RISK AVERSION AND OVERBIDDING IN FIRST PRICE SEALED BID AUCTIONS: NEW EXPERIMENTAL EVIDENCE. (17th September 2018)

• Record Type: Journal Article
• Authors: Füllbrunn, Sascha; Janssen, Dirk‐Jan; Weitzel, Utz
• Is Part Of: Economic inquiry. Volume 57:Number 1(2019)
• Page Start: 631
• Page End: 647
• Publication Date: 2018-09-17
• Subjects: Economics -- Periodicals; 330.05
• DOI: 10.1111/ecin.12716
• Languages: English
• ISSNs: 0095-2583

Abstract

Abstract : Bidding above the risk‐neutral Nash equilibrium in first price sealed bid auctions has traditionally been ascribed to risk aversion. Later studies, however, offer other explanations and even argue that risk aversion plays no or a minor role. In a novel experimental design, we directly test the relationship between risk aversion and overbidding by systematically varying the distribution of risk attitudes in auction markets. We find a significant relationship between our measure of risk aversion and overbidding. ( JEL D44, C91)