Ambiguity aversion in first-price sealed-bid auctions

Salo, Ahtia ; Weber, Martin

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Document Type: Article
Year of publication: 1995
The title of a journal, publication series: Journal of Risk and Uncertainty
Volume: 11
Issue number: 2
Page range: 123-137
Place of publication: New York, NY [u.a.]
Publishing house: Springer
ISSN: 0895-5646 , 1573-0476
Publication language: English
Institution: Business School > ABWL u. Finanzwirtschaft, insbes. Bankbetriebslehre (Weber 1993-2017)
Subject: 000 Generalities
150 Psychology
330 Economics
Classification: JEL: D44,
Keywords (English): auctions, bidding theory
Abstract: Experiments on first-price sealed-bid auctions with independent private values have shown that submitted bids typically exceed Nash-equilibrium predictions for risk-neutral bidders. Existing bidding models explain this phenomenon by assuming that the bidders are risk-averse and capable of drawing complete and correct inferences about their winning probabilities. In this article, we use the Choquet expected utility (CEU) theory to demonstrate that the observed bidding behavior can also be attributed to ambiguity aversion which causes the bidders to underestimate their chances of winning the auction. Empirical support for CEU bidding models is given through an analysis of recent bidding data.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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