Working paper

Star-Shaped Probability Weighting Functions and Overbidding in First-Price Auctions

Olivier Armantier, and Nicolas Treich

Abstract

There is a debate about whether risk aversion is the main source of overbidding in a first-price independent private values auction. As an alternative, we adopt a non-expected utility framework, and identify an interpretable property on the probability weighting function which always induces overbidding.

Keywords

probability weighting function; auctions; overbidding; non-expected utility; risk aversion;

JEL codes

  • C70: General
  • C92: Laboratory, Group Behavior
  • D44: Auctions
  • D81: Criteria for Decision-Making under Risk and Uncertainty

Reference

Olivier Armantier, and Nicolas Treich, Star-Shaped Probability Weighting Functions and Overbidding in First-Price Auctions, TSE Working Paper, n. 09-024, March 2009.

See also

Published in

TSE Working Paper, n. 09-024, March 2009