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Risk Aversion and Auction Design: Theoretical and Empirical Evidence
Published in International Journal of Industrial Organization, 2021
With Shoshana Vasserman. Auctions are inherently risky: bidders face uncertainty about their prospects of winning and payments, while sellers are unsure about revenue and chances of a successful sale. Auction rules influence the allocation of risk among agents and the behavior of risk-averse bidders, leading to a breakdown of payoff and revenue equivalence and a heightened significance of auction design decisions by sellers. In this paper, we review the literature on risk aversion in auctions, with an emphasis on what can be learned about auction design from theoretical modeling and empirical studies. We survey theoretical results relating to the behavior of risk-averse agents in auctions, the comparison of standard auction formats in the presence of risk aversion and implications for auction design. We discuss standard and more recent approaches to identifying risk preferences in empirical studies and evidence for the significance of risk aversion in auction applications. Finally, we identify areas where existing evidence is relatively scant and ask what questions empirical research might ask given the theory and where further theoretical research may be beneficial given existing empirical results.
Recommended citation: Vasserman, S. and Watt, M. (2021). "Risk Aversion and Auction Design: Theoretical and Empirical Evidence." International Journal of Industrial Organization. 79(102758). https://doi.org/10.1016/j.ijindorg.2021.102758
talks
teaching
University of Queensland
Tutor, University of Queensland, 2013
I taught in both the School of Economics and the Department of Mathematics at the University of Queensland.
Harvard Kennedy School
Teaching Fellow and Course Assistant, Harvard Kennedy School, 2017
I was a teaching fellow for introductory economics and game theory courses for Masters students at Harvard Kennedy School, for which I was awarded Harvard Kennedy School’s Dean’s Award for Excellence in Student Teaching.
Stanford University
Instructor and Teaching Assistant, Stanford University, 2022
At Stanford, I taught graduate mathematics preparation, undergraduate market design, and first-year Ph.D. microeconomics.
Monash University
Lecturer, Monash University, 2026
I teach ECF 3900 Business, Competition, and Regulation at Monash University.