Empirical Relevance of Ambiguity in First-Price Auctions
63 Pages Posted: 7 Mar 2016 Last revised: 12 May 2018
Date Written: June 30, 2017
We study the identification and estimation of first-price auctions with independent private values if bidders face ambiguity about the valuation distribution and have maxmin expected utility. Using variation in the number of bidders we nonparametrically identify the true valuation distribution and the lower envelope of the set of prior beliefs. We also allow for CRRA and unobserved auction heterogeneity, and propose a Bayesian estimation method based on Bernstein polynomials. Monte Carlo experiments show that our estimator performs well, and incorrectly ignoring ambiguity induces bias and loss of revenue. We find evidence of ambiguity in timber auctions in the Pacific Northwest.
Keywords: first-price auction, identification, ambiguity aversion, maxmin expected utility, Bayesian estimation
JEL Classification: C11, C44, D44
Suggested Citation: Suggested Citation