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'?