Microtheory: Asymmetric optimal auction design with loss-averse bidders

Professor Takeharu Sogo, SKEMA Business School

'Asymmetric optimal auction design with loss-averse bidders' (co-authored by A. Muramoto)
Tuesday 3 May 2022, 1pm-2.15pm
Adam Smith Building, Room 916

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Abstract

We study optimal auctions when bidders are expectation-based loss averse. We first consider when bidders are ex-ante identical. Although symmetric designs are optimal for bidders with expected-utility preferences, if the degree of loss aversion is sufficiently large relative to the variation in valuations, the expected revenue in the optimal mechanism with one buyer is higher than in any symmetric mechanism with multiple bidders. Further, under mild conditions, optimal designs are necessarily asymmetric. When bidders are ex-ante heterogeneous, the optimal degree of favoritism must be modified from the level prescribed in Myerson (1981) to reduce the uncertainty in auction outcomes. The required modification depends on the degree of loss aversion, and its relationship may not be monotone.

Biography

Takeharu Sogo is the Associate Professor of Finance at SKEMA Business School, France. He gained his PhD In Economics from the University of Illinois at Urbana-Champaign.


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First published: 21 March 2022

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