Identification and Estimation of Bidders' Risk Aversion in First-Price Auctions

摘要

Risk aversion is a fundamental concept in economics used to explain agents' behavior under uncertainty. Risk aversion in auctions has been justified through the many uncertainties faced by bidders and through the large value of bids relative to bidders' assets. In first-price auctions, risk aversion renders more aggress-sive bidding, while bidding in ascending auctions is not affected, leading to the dominance of the sealed-bid mechanism over the ascending one. Risk aversion has been tested extensively on experimental data, as overbidding relative to the Nash equilibrium is frequently observed. In view of recent developments in the structural estimation of auction models, Patrick Bajari and Ali Hortacsu (2005) show that the risk-aversion model provides the best fit for experimental data.