Risk Aversion and Overbidding in First Price Sealed Bid Auctions: New Experimental Evidence
until further notice
SourceEconomic Inquiry, 57, 1, (2019), pp. 631-647
18 september 2018
Article / Letter to editor
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Financiële economie en ondernemingsfinanciering
SubjectIntegrated Decision Making (ID)
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.
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