Let H = Highest bidder -Open or sealed bids -Types of auctions, assuming a common worth Type
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Question:
Let H = Highest bidder
-Open or sealed bids
-Types of auctions, assuming a common worth
Type of auction | Bids | Features |
English | Open | $10, $12, ...until H wins |
Dutch | Open | $30, $28,...until H raises her hand |
Vickrey | Sealed | Pay 2nd highest bid |
Sealed bid | Sealed | Pay what you bid |
Surprise result: H will pay the second highest valuation in each of the above auctions! In other words, all the above auctions give the same result.
- C = Winning bid - W (Winner's curse)
- Who do people over-bid?
- Desperate, emotional
- Intense competition
- Strategic, e.g. to gain experience, enter a market
- Imperfect and asymmetric information
- Imperfect: Info is partially known
- Asymmetric: One side knows better, e.g. car seller knows the quality of the car better than buyer
Question:
1) What is the reason that all auction methods will give the same result, that Highest Bidder 'H' will pay the second highest valuation?
2) How can we reduce the Winner's Curse 'C'?
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