What proportion of the value do bidders bid

Reference no: EM132200879

Question: Consider a private-value first-price sealed-bid auction with two bidders. Each bidder's value is drawn from the uniform distribution on [0 , 1]. Unlike in the case we studied in the class, assume that rather than being risk-neutral, bidders may also be risk-averse. or risk-loving. In particular, the utility function of each bidder is given by u(x) = xÎ³ with Î³ > 0. Note that Î³ = 1 corresponds to risk neutrality, Î³ < 1 corresponds to risk aversion and Î³ > 1 corresponds to risk-loving.

1. Solve for the symmetric Bayesian Nash Equilibrium bidding functions. What proportion of their value do bidders bid? How does it depend on their risk aversion? Explain.

2. How do your answers change if there are n > 2 bidders? Provide an intuition for the change.

Reference no: EM132200879

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