Utility Equivalence in Sealed Bid Auctions and the Dual Theory of Choice Under Risk

This paper analyzes symmetric, single item auctions in the private values framework, with buyers whose preferences satisfy the axioms of Yaari's (1987) dual theory of choice under risk. It is shown that when their valuations are independently and identically distributed, buyers are indifferent among all the auctions contained in a big family of mechanisms which includes the standard auctions. It is also shown that in the linear equilibria of the sealed bid double auction, as the degree of players' risk aversion grows arbitrarily large, the ex post inefficiency of the mechanism tends to vanish.