Ambiguity aversion in first-price sealed-bid auctions

Ahti Salo, Martin Weber

Research output: Contribution to journalArticleScientificpeer-review

34 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)123-137
Number of pages15
JournalJOURNAL OF RISK AND UNCERTAINTY
Volume11
Issue number2
DOIs
Publication statusPublished - Sep 1995
MoE publication typeA1 Journal article-refereed

Keywords

  • auctions
  • bidding theory
  • D44

Fingerprint Dive into the research topics of 'Ambiguity aversion in first-price sealed-bid auctions'. Together they form a unique fingerprint.

Cite this