Auction Theory, 2nd Edition

38 Qualifications and Extensions

An exploration of the consequences of relaxing the first assumption—the

independence of the values—is postponed for the moment. It is the focus of

Chapter 6, where we consider a more general model that simultaneously relaxes

both this assumption and the assumption of private values.

4.1 RISK-AVERSE BIDDERS

We now argue that if bidders are risk-averse, but all other assumptions are

retained, the revenue equivalence principle no longer holds. In particular, we

retain all our other assumptions: independence of values, symmetry among bid-

ders, and the absence of budget constraints.

Risk neutrality implies that the expected ...