On Risk Aversion in Auctions
Theoretical Economics
2026-03-11 v1
Abstract
We provide a unifying way to analyze how risk aversion changes bidding in auctions by asking which bids become more attractive as bidders become more risk averse. In first-price auctions, under two payoff conditions--winning is never worse than the outside option, and winning with a low bid is preferable to winning only with a high bid--greater risk aversion makes high bids more appealing. In second-price auctions with a known outside option, bidding more increases risk exposure conditional on winning, so greater risk aversion favors lower bids. We show these bid-level forces translate into corresponding equilibrium comparative statics.
Keywords
Cite
@article{arxiv.2603.09683,
title = {On Risk Aversion in Auctions},
author = {Marilyn Pease and Mark Whitmeyer},
journal= {arXiv preprint arXiv:2603.09683},
year = {2026}
}