Ambiguity Aversion and Auction Theory

This paper considers when the utility function of the bidders is ambiguity averse, how does the bidding strategy differ in four classical auction mechanisms. In particular, if there is no information affiliation, i.e., when first order sealed auction is equivalent to English auction in terms of bidding, bidders may bid higher or lower relative to ambiguity neutral case. From the seller’s point of view, expected revenue equivalence theorem may not hold generally. First order sealed auction may yield an higher or lower revenue relative to the second order sealed auction. Our theory explains why English auctions may not always underperform than the second order sealed auctions, even when the bidders are risk averse. JEL Classification numbers: C91,D44,D83