Large auctions with risk-averse bidders

Gadi Fibich, Arieh Gavious

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

We study private-value auctions with n risk-averse bidders, where n is large. We first use asymptotic analysis techniques to calculate explicit approximations of the equilibrium bids and of the seller's revenue in any k-price auction (k = 1,2,...). These explicit approximations show that in all large k-price auctions the effect of risk-aversion is O(1/n2) small. Hence, all large k-price auctions with risk-averse bidders are O(1/n2) revenue equivalent. The generalization, that all large auctions are O(1/n2) revenue equivalent, is false. Indeed, we show that there exist auction mechanisms for which the limiting revenue as n → ∞ with risk-averse bidders is strictly below the risk-neutral limit. Therefore, these auction mechanisms are not revenue equivalent to large k-price auctions even to leading-order as n → ∞.

Original languageEnglish
Pages (from-to)359-390
Number of pages32
JournalInternational Journal of Game Theory
Volume39
Issue number3
DOIs
StatePublished - 1 Jul 2010

Keywords

  • Asymptotic analysis
  • Equilibrium strategy
  • Large auctions
  • Revenue equivalence
  • Risk aversion

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