An experimental study of precautionary bidding

• Auctions often involve goods exhibiting a common-knowledge ex-post risk. In such auctions, precautionary bidding predicts that under expected utility, DARA bidders reduce their bids by more than the appropriate risk premium. Because the degree of riskiness of an auctioned good and bidders' levels of risk aversion are difficult to observe in field settings, we conduct experimental auctions that allow us to identify the precautionary premium directly. We find strong evidence for precautionary bidding. The effect is robust to changes in experimental design features. Our experiment provides the first empirical demonstration of precautionary motives in a strategic setting. (C) 2015 Elsevier B.V. All rights reserved.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Nyckelord

Precautionary bidding

Prudence

Auction

Experiment

RISK-AVERSION

PRUDENCE

UNCERTAINTY

AUCTIONS

GAMES

PREFERENCES

BEHAVIOR

SEEKING

CHOICE

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