An Experimental Study of Auctions Behavior With Risk Preferences

Document Type : Original Article

Authors

School of Industrial Engineering, Iran University of Science and Technology, Tehran, Iran

10.22034/ijiems.2022.360921.1057

Abstract

There is an inherent risk in purchasing and selling an object at auction. Recent experimental studies demonstrate that risk preferences influence the bidding behavior of buyers, but they report varying results for the effects of risk attitudes on the expected revenues of different auctions. For example, literature reports that when bidders are risk-preferring, revenues in premium auctions are much greater than in a risk-averse setting, while reporting the opposite of that claim for the FPA. We conducted an experiment to investigate that claim about the hybrid Dutch auction (HDA), taking into account two distinct risk preference groups. Our findings indicate that, similar to the FPA, revenues in the HDA grow with risk aversion. Bidders with lower values bid more aggressively than bidders with higher values in both risk-averse and risk-loving treatments. The results also revealed that the amount and variance of shading increase significantly with value. Moreover, greater competition has a greater impact on the stability of the HDA with risk-seeking and risk-averse bidders than on the expected revenues. Finally, the study indicates that a small number of participants may be the reason why some experiments found that auctions generate less revenue than they would in a symmetric equilibrium and that participants rarely follow the equilibrium strategy.

Keywords


Volume 8, Issue 2
December 2021
Pages 1-7
  • Receive Date: 06 September 2022
  • Accept Date: 07 September 2022
  • First Publish Date: 07 September 2022