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Publisher DOI: 10.1016/j.econlet.2022.110891
Title: Separating probability weighting and risk aversion in first-price auctions
Language: English
Authors: Haruvy, Ernan 
Heinrich, Timo  
Walker, Matthew J. 
Keywords: Bidding; First-price auctions; Experiment; Inverse S-shaped probability weighting; Bias
Issue Date: Dec-2022
Publisher: Elsevier
Source: Economics Letters (221): 110891 (2022-12)
Abstract (english): 
In first price sealed-bid auctions, a power probability weighting function is observationally equivalent to a model with constant relative risk aversion. By comparing auctions with different ceilings on a computerized opponent’s bid space, we can separate inverse S-shaped probability weighting as commonly used in the literature and risk-averse preferences from the distribution of observed bids. We find evidence to support both theories in the data. However, we also observe a significant number of violations after accounting for decision noise, which suggest that bidders’ valuations may be malleable to cues of the auction environment.
DOI: 10.15480/882.4660
ISSN: 0165-1765
Journal: Economics letters 
Institute: Digital Economics W-5 
Document Type: Article
Peer Reviewed: Yes
License: CC BY-NC-ND 4.0 (Attribution-NonCommercial-NoDerivatives) CC BY-NC-ND 4.0 (Attribution-NonCommercial-NoDerivatives)
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