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Martin Kocher, University of Munchen Print
Tuesday, 08 November 2011, 14:00 - 15:15

Martin Kocher, University of Munchen

An Experimental Test of Precautionary Bidding

Abstract: Auctions often involve goods exhibiting a common knowledge ex-post risk that is independent of buyers’ private values or their signals regarding common value components. Esö and White (2004) showed theoretically that ex-post risk leads to precautionary bidding for DARA bidders: Agents reduce their bids by more than their appropriate risk premium. Testing precautionary bidding with data from the field seems almost impossible. We conduct experimental first-price auctions that allow us to directly identify the precautionary premium and find clear evidence for precautionary bidding. Bidders are significantly better off when a risky object rather than an equally valued sure object is auctioned. Our results are robust if we control for potentially confounding decision biases.

Location: R42.2.113
Contact: Claude Adan, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

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