Auctioning risk: the all-pay auction under mean-variance preferences

Abstract We analyse the all-pay auction with incomplete information and variance-averse bidders. characterise unique symmetric equilibrium for general distributions of valuations any number Variance aversion is a sufficient assumption to predict that high-valuation bidders increase their bids relative risk-neutral case while low types decrease bid. Considering an asymmetric two-player environment uniformly distributed valuations, we show player always higher than her opponent same valuation. Utilising our analytically derived bidding functions discuss auctions from designer’s perspective. briefly consider possible extensions model, including noisy signals, type-dependent attitudes towards risk, variance-seeking preferences.