Mechanism Design Beyond Risk Neutrality
summary
Characterizes optimal single-item auctions when bidders are not risk neutral and gives concrete gains and limits: for a uniform[0,1] buyer a fixed reserve 1/2 yields revenue 0.25 but adding a deterministic vs lottery option raises revenue slightly above 0.25; for risk-seeking exponential utility with payment cap M a randomized take-it-or-leave-it price (charge M with prob 1/2) gets about 0.44 revenue, much higher than 0.25. Shows exponential utility makes that simple randomized mechanism optimal, gives a quadratic-utility counterexample, and lists open problems on dynamics, prospect theory and risk-robust design.
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