Journal of Risk and Uncertainty

, Volume 11, Issue 2, pp 123–137

Ambiguity aversion in first-price sealed-bid auctions

  • Ahtia Salo
  • Martin Weber
Article

DOI: 10.1007/BF01067681

Cite this article as:
Salo, A. & Weber, M. J Risk Uncertainty (1995) 11: 123. doi:10.1007/BF01067681

Abstract

Experiments on first-price sealed-bid auctions with independent private values have shown that submitted bids typically exceed Nash-equilibrium predictions for risk-neutral bidders. Existing bidding models explain this phenomenon by assuming that the bidders are risk-averse and capable of drawing complete and correct inferences about their winning probabilities. In this article, we use the Choquet expected utility (CEU) theory to demonstrate that the observed bidding behavior can also be attributed to ambiguity aversion which causes the bidders to underestimate their chances of winning the auction. Empirical support for CEU bidding models is given through an analysis of recent bidding data.

Key words

auctions bidding theory 

JEL Number

D44 

Copyright information

© Kluwer Academic Publishers 1995

Authors and Affiliations

  • Ahtia Salo
    • 1
  • Martin Weber
    • 2
  1. 1.Nokia Research CenterHelsinkiFinland
  2. 2.Lehrstuhl für Allgemeine BetriebswirtschaftslehreUniversität MannheimMannheimGermany

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