Auctions and Contingent Reasoning Flashcards
Outline: Private value auctions
No correlation btween agent’s value for an item
Sellers iunterested in revenue
Economists interesed in efficiency
Outline: First Price Sealed Bid (FPSB) Auction
Everyine simultaneously submits a bdid for an item
Outline: the FPSB model
Every bidder has valie Vi, drawn from a unifrom distribution
Baysian Nash eq. - bi=((n-1)/n)*Vi
Agents shouldn’t bid full value as all surplus given up (shade bid)
Outline: FPSB typical results
Over bidding - why?
1 - Risk aversion - causes increase in bids in eq
2 -Flat payoffs - payoffs are flat, thereofe not kuch expected loss and so agents dont care that much - don’t fully consider the optimal strategy
Outline: Dutch Auction (DA)
Price starts v high, then falls. Ends when bidder claims item at a price
Outline: DA classical theory
Same as FPSB - use same strategy
Outline: DA reality
DA bids are lower and much closer to the bid function - Why?
More fun to play DA, so agents more engaged and play fro longer, pushing prices down
Subjects read too much inot people not entering, amking a persistant calculation error
Outline: Second Price Sealed Bid (SPSB) Auction
Bids sealed and item won by higest bidder but they pay the price of the second highest bid
Outline: SPSB theory
Optimal to bid value (dom. strategy)
Outline: SPSB reality
Many bid their value, but still many who bid over their value
Outline: English Auction (EA)
People bid in ascending order, won by highest bidder
Outline: EA theory
Same as SPSB auction, stay in until b=v then drop out
Outline: EA reality
Less likely to overbid in EA as easy to see overbidding leads to -ve surplus
What does Li (2017) say?
A strategy is obvioulsy dominant if the wordt thing that can happen when i choose it is at lewast as good as the best thing that can happen under any other strategy
Outline: Common Value Auctions (CVA)
People’s values are correlated (oil, gas, etc.)
Every bidder has a noisy signal as to the true value
