A Direct Test of Risk Aversion and Regret in First Price Sealed-Bid Auctions

Authors:
Richard Engelbrecht-Wiggans;Elena Katok
Affiliations:
College of Business, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820;Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802
Venue:
Decision Analysis
Year:
2009

Citing 2
Cited 7

The effect of regret on optimal bidding in auctions

Management Science
Regret and Feedback Information in First-Price Sealed-Bid Auctions

Management Science

From the Editors...

Decision Analysis
Honoring Michael H. Rothkopf's Legacy of Rigor and Relevance in Auction Theory: From the Editors

Decision Analysis
Pricing Rule in a Clock Auction

Decision Analysis
Measuring Risk Aversion in a Name-Your-Own-Price Channel

Decision Analysis
From the Editor---Decisions over Time (Exploding Offers or Purchase Regret), in Game Settings (Embedded Nash Bargaining or Adversarial Games), and in Influence Diagrams

Decision Analysis
Dynamic Purchase Decisions Under Regret: Price and Availability

Decision Analysis
When Does It Pay to Delay Supplier Qualification? Theory and Experiments

Management Science

Quantified Score

Hi-index	0.00

Visualization

Abstract

Why do bidders tend to bid higher than the risk-neutral Nash equilibrium in sealed-bid first price auction experiments? The effect of risk aversion has long been offered as a possible explanation. More recently, several studies proposed regret as another explanation, citing strong experimental evidence. But which effect is more important? We design an experiment to separate the effects of risk aversion from those of regret. We find overwhelming evidence in support of the regret model, and virtually no support for the constant relative risk aversion model.