Selection into Auctions for Risky and Ambiguous Prospects

14 Pages Posted: 30 Nov 2012

See all articles by Martin G. Kocher

Martin G. Kocher

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Göteborg University - School of Business, Economics and Law; Queensland University of Technology - School of Economics and Finance

Stefan Trautmann

Tilburg University

Date Written: January 2013

Abstract

We study experimentally the selection into first‐price sealed‐bid auctions for a risky or an ambiguous prospect. Most subjects chose to submit a bid for the risky prospect, leading to thinner markets for the ambiguous prospect. Transaction prices for both prospects were equal although subjects expected the ambiguous markets to be smaller. Evidence of a positive correlation between risk and ambiguity aversion suggests that the ambiguous markets were populated by relatively risk tolerant bidders. A control experiment with selection in a simple choice task shows that subjects correctly anticipate the effects of selection on market size and risk attitudes.

JEL Classification: C91, D44, D81

Suggested Citation

Kocher, Martin G. and Trautmann, Stefan, Selection into Auctions for Risky and Ambiguous Prospects (January 2013). Economic Inquiry, Vol. 51, Issue 1, pp. 882-895, 2013. Available at SSRN: https://ssrn.com/abstract=2182955 or http://dx.doi.org/10.1111/j.1465-7295.2010.00347.x

Martin G. Kocher (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Stefan Trautmann

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

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