Article ID: | iaor200968858 |
Country: | United States |
Volume: | 6 |
Issue: | 2 |
Start Page Number: | 75 |
End Page Number: | 86 |
Publication Date: | Jun 2009 |
Journal: | Decision Analysis |
Authors: | Engelbrecht-Wiggans Richard, Katok Elena |
Keywords: | risk |
Why do bidders tend to bid higher than the risk-neutral Nash equilibrium in sealed-bid first price auction experiments? The effect of risk aversion has long been offered as a possible explanation. More recently, several studies proposed regret as another explanation, citing strong experimental evidence. But which effect is more important? We design an experiment to separate the effects of risk aversion from those of regret. We find overwhelming evidence in support of the regret model, and virtually no support for the constant relative risk aversion model.