Auctioning risk: The all-pay auction under mean-variance preferences

Arbeitspapier

We develop the idea of using mean-variance preferences for the analysis of the first-price, all-pay auction. On the bidding side, we characterise the optimal strategy in symmetric all-pay auctions under mean-variance preferences for general distributions of valuations and any number of bidders. We find that, in contrast to winner-pay auction formats, only hightype bidders increase their bids relative to the risk-neutral case while low types minimise variance exposure by bidding low. Introducing asymmetric variance aversions across bidders into a Uniform valuations, two-player framework, we show that a more variance-averse type bids always higher than her less variance-averse counterpart. Taking mean-variance bidding behaviour as given, we show that an expected revenue maximising seller may want to optimally limit the number of participants. Although expected revenue for risk-neutral bidders typically dominates revenue under mean-variance bidding, if the seller himself takes account of the variance of revenue, he may find it preferable to attract bidders endowed with mean-variance preferences.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 97

Classification and Topics

• Classification: Wirtschaft ; Criteria for Decision-Making under Risk and Uncertainty
• Subject: auctions ; contests ; mean-variance preferences ; Entscheidung bei Risiko ; Spieltheorie ; Auktionstheorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Klose, Bettina ; Schweinzer, Paul
• Event: Veröffentlichung
• (who): University of Zurich, Department of Economics
• (where): Zurich
• (when): 2012

Further information

• DOI: doi:10.5167/uzh-67043
• Handle: http://hdl.handle.net/10419/77488
• Last update: 10.03.2025, 11:42 AM CET