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Risk Aversion And Overbidding In First Price Sealed Bid Auctions: New Experimental Evidence

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  • Sascha Füllbrunn
  • Dirk‐Jan Janssen
  • Utz Weitzel

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)

Suggested Citation

  • Sascha Füllbrunn & Dirk‐Jan Janssen & Utz Weitzel, 2019. "Risk Aversion And Overbidding In First Price Sealed Bid Auctions: New Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 631-647, January.
    • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:1:p:631-647
    DOI: 10.1111/ecin.12716
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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