Inference of BiddersRisk Attitudes in Ascending Auctions with Endogenous Entry

Biddersrisk attitudes have key implications for the choices of revenue-maximizing auction formats. In ascending auctions, bid distributions do not provide information about risk preference. We infer risk attitudes using distributions of transaction prices and participation decisions in ascending auctions with entry costs. Nonparametric tests are proposed for two distinct scenarios: \u85 rst, the expected entry cost can be consistently estimated from the data; second, the data does not report entry costs but contains exogenous variation in potential competition and auction characteristics. In the rst scenario, we exploit the fact that the risk premium required for entry the di¤erence between ex ante expected pro\u85ts from entry and the certainty equivalent is strictly positive if and only if bidders are risk-averse. Our test is based on the identi cation of biddersex ante pro\u85ts. In the second scenario, our test builds on the fact that risk attitudes a¤ect how equilibrium entry probabilities vary with observed auction characteristics and potential competition. We also show the identi\u85cation of risk attitudes in a model of ascending auctions with selective entry, where bidders receive entry-stage signals that are correlated with private values