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Empirical relevance of ambiguity in first-price auctions

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  • Aryal, Gaurab
  • Grundl, Serafin
  • Kim, Dong-Hyuk
  • Zhu, Yu

Abstract

We study the identification and estimation of first-price auctions with independent private values if bidders face ambiguity about the valuation distribution and have maxmin expected utility. Using variation in the number of bidders we nonparametrically identify the true valuation distribution and the lower envelope of the set of prior beliefs. We also allow for CRRA and unobserved auction heterogeneity, and propose a Bayesian estimation method based on Bernstein polynomials. Monte Carlo experiments show that our estimator performs well, and incorrectly ignoring ambiguity induces bias and loss of revenue. We find evidence of ambiguity in timber auctions in the Pacific Northwest.

Suggested Citation

  • Aryal, Gaurab & Grundl, Serafin & Kim, Dong-Hyuk & Zhu, Yu, 2018. "Empirical relevance of ambiguity in first-price auctions," Journal of Econometrics, Elsevier, vol. 204(2), pages 189-206.
    • Handle: RePEc:eee:econom:v:204:y:2018:i:2:p:189-206
    DOI: 10.1016/j.jeconom.2018.02.001
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    Cited by:

    1. Song, Yangwei, 2018. "Efficient implementation with interdependent valuations and maxmin agents," Journal of Economic Theory, Elsevier, vol. 176(C), pages 693-726.
    2. Song, Yangwei, 2023. "Approximate Bayesian implementation and exact maxmin implementation: An equivalence," Games and Economic Behavior, Elsevier, vol. 139(C), pages 56-87.
    3. Serafin J. Grundl & Yu Zhu, 2019. "Robust Inference in First-Price Auctions : Experimental Findings as Identifying Restrictions," Finance and Economics Discussion Series 2019-006, Board of Governors of the Federal Reserve System (U.S.).
    4. Song, Yangwei, 2018. "Efficient Implementation with Interdependent Valuations and Maxmin Agents," Rationality and Competition Discussion Paper Series 92, CRC TRR 190 Rationality and Competition.
    5. Joseph Kuehn, 2019. "Estimating Auctions with Externalities: The Case of USFS Timber Auctions," The Review of Economics and Statistics, MIT Press, vol. 101(5), pages 791-807, December.
    6. Ghosh, Gagan & Liu, Heng, 2021. "Sequential auctions with ambiguity," Journal of Economic Theory, Elsevier, vol. 197(C).
    7. Kim, Dong-Hyuk & Ratan, Anmol, 2022. "Disentangling risk aversion and loss aversion in first-price auctions: An empirical approach," European Economic Review, Elsevier, vol. 150(C).
    8. Grundl, Serafin & Zhu, Yu, 2023. "Robust inference in first-price auctions: Overbidding as an identifying restriction," Journal of Econometrics, Elsevier, vol. 235(2), pages 484-506.
    9. Grundl, Serafin & Zhu, Yu, 2024. "Two results on auctions with endogenous entry," Economics Letters, Elsevier, vol. 234(C).
    10. Gaurab Aryal & Hanna Charankevich & Seungwon Jeong & Dong-Hyuk Kim, 2021. "Procurements with Bidder Asymmetry in Cost and Risk-Aversion," Papers 2111.04626, arXiv.org, revised Jul 2022.
    11. Bougt, Daniel & Ghosh, Gagan & Liu, Heng, 2023. "Identification of interdependent values in sequential first-price auctions," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    12. Song, Yangwei, 2022. "Approximate Bayesian Implementation and Exact Maxmin Implementation: An Equivalence," Rationality and Competition Discussion Paper Series 362, CRC TRR 190 Rationality and Competition.

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    More about this item

    Keywords

    First-price auction; Identification; Ambiguity aversion; Bayesian estimation;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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