Optimal Auctions: Non-expected Utility and Constant Risk Aversion

Alex Gershkov, Benny Moldovanu, Philipp Strack, Mengxi Zhang

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


We study auction design for bidders equipped with non-expected utility preferences that exhibit constant risk aversion (CRA). The CRA class is large and includes loss-averse, disappointment-averse, mean-dispersion, and Yaari’s dual preferences as well as coherent and convex risk measures. Any preference in this class displays first-order risk aversion, contrasting the standard expected utility case which displays second-order risk aversion. The optimal mechanism offers “full-insurance” in the sense that each agent’s utility is independent of other agents’ reports. The seller excludes less types than under risk neutrality and awards the object randomly to intermediate types. Subjecting intermediate types to a risky allocation while compensating them when losing allows the seller to collect larger payments from higher types. Relatively high types are willing to pay more, and their allocation is efficient.

Original languageEnglish
Pages (from-to)2630-2662
Number of pages33
JournalReview of Economic Studies
Issue number5
StatePublished - 1 Oct 2022
Externally publishedYes


  • Constant risk aversion
  • Optimal auctions
  • Yaari utility


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