Ranking Auctions with Risk Averse Bidders
This paper ranks first- and second-price, independent value auctions with risk-averse bidders when entry is endogenous. Unless bidders exhibit decreasing absolute risk aversion (DARA), the “fixed-n” ranking of first-price over second-price is sustained. However, when bidders exhibit DARA, we show that the effect of entry sometimes reverses the ranking. We discuss how elements of the auction environment such as the relative magnitude of entry costs, the number of potential bidders, and the degree of risk aversion affect the ranking.Journal of Economic LiteratureClassification Numbers: D44, D82, C72.