TY - JOUR

T1 - Large auctions with risk-averse bidders

AU - Fibich, Gadi

AU - Gavious, Arieh

PY - 2010/7

Y1 - 2010/7

N2 - 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 → ∞.

AB - 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 → ∞.

KW - Asymptotic analysis

KW - Equilibrium strategy

KW - Large auctions

KW - Revenue equivalence

KW - Risk aversion

UR - http://www.scopus.com/inward/record.url?scp=77952427765&partnerID=8YFLogxK

U2 - 10.1007/s00182-009-0181-6

DO - 10.1007/s00182-009-0181-6

M3 - ???researchoutput.researchoutputtypes.contributiontojournal.article???

AN - SCOPUS:77952427765

SN - 0020-7276

VL - 39

SP - 359

EP - 390

JO - International Journal of Game Theory

JF - International Journal of Game Theory

IS - 3

ER -