Revenue implications of strategic and external auction risk

DOI10.3390/G7010005MaRDI QIDQ1651848zbMATH OpenOpenAlexFDO

Authors Andrea Robbett, Michael K. Graham, Peter Hans Matthews

Publication date 10 July 2018

Published in Games (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.3390/g7010005

zbMATH Keywords

auctionsexperimental economicsreputationrevenue equivalence

Mathematics Subject Classification ID

Experimental studies (91A90) Auctions, bargaining, bidding and selling, and other market models (91B26)

Review text

Summary: Two experimental treatments are used to study the effects of auction risk across five mechanisms. The first canonical, baseline treatment features only strategic risk and replicates the standard results that overbidding relative to the risk neutral Nash equilibrium is prevalent in all common auction mechanisms except for the English auction. We do not find evidence that bidders' measured risk preferences can explain these patterns of overbidding. To enhance salience, we introduce a second novel treatment with external risk. This treatment captures the risk, prevalent in online auctions, that winners will not receive a good of value. We find that dynamic auctions -- including the English -- are particularly susceptible to overbidding in this environment. We note that overbidding is somewhat diminished in later periods and that our results may thus have particular relevance for bidders who are not highly experienced or who have not directly experienced losses. We conclude with a brief discussion of research implications.

Recommendations

• Bidding in private-value auctions with uncertain values
• English auctions with ensuing risks and heterogeneous bidders
• Premium auctions and risk preferences: an experimental study
• English auctions with resale: an experimental study
• Theoretical and experimental analysis of auctions with negative externalities

Cites work

• All-pay auctions with risk-averse players
• Auction fever: rising revenue in second-price auction formats
• Behavior in all-pay auctions with incomplete information
• Do subjects separate (or are they sophisticated)?
• Explaining overbidding in first price auctions using controlled lotteries
• Just who are you calling risk averse?
• Why can't a woman bid more like a man?

Cited in

(6)

• Risky procurement with an insider bidder
• Does suspending an English auction increase revenues?
• Common value auctions with default: An experimental approach
• Fear of losing in a clock auction
• Bidding in private-value auctions with uncertain values
• An externality-robust auction: theory and experimental evidence

Describes a project that uses

Uses Software

• Z-Tree

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