|Kocher, Martin G. and Pahlke, Julius and Trautmann, Stefan T. (August 2010): An Experimental Test of Precautionary Bidding. Discussion Papers in Economics 2010-30|
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.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||precautionary bidding, prudence, auction, experiment|
Economics > Discussion Papers in Economics
Economics > Discussion Papers in Economics > Game Theory
Economics > Chairs > Chair of Empirical Economics
|Subjects:||300 Social sciences > 300 Social sciences, sociology and anthropology|
300 Social sciences > 330 Economics
|JEL Classification:||C91, D44, D81|
|Deposited On:||13. Aug 2010 12:37|
|Last Modified:||16. Apr 2014 14:06|
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