Data from wine auctions indicate that identical products sold sequentially typically follow a decreasing pattern of prices, known as the declining price anomaly. This is explained, for both first and second price auctions, by appealing to risk averse bidders. Earlier bids are then equal to expected later prices plus a risk premium associated with the risky future price. We show that this logic rests on the assumption of nondecreasing absolute risk aversion, which is necessary for pure strategy equilibrium bidding functions to exist.
The Declining Price AnomalyPreston R. McAfee and Daniel R. Vincent ,
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Journal of Economic Theory