Common value - Module 5 Flashcards
In theory, with risk neutral agents, should agents bid more or less in an auction with common value or private values?
More in private, less in common
What assumption is required for agents to be able to learn other’s private signals in an English auction?
That other players are rational
In an auction with common value, what do individual agents have?
Private signals
What is the winner’s curse?
The tendency for the highest bid in an auction with common value to be higher than the value of the good
What is the main cause of the winner’s curse?
The individual with the highest private signal tends to bid the highest, over-estimating the common value of the good and overpaying
What do we assume regarding private signals when theoretically considering auctions with common value?
Private signals are i.i.d and follow a uniform distribution [0,1]
What is the symmetric Nash equilibrium strategy for a first-price sealed-bid auction with common value and i.i.d uniformly distributed private signals and risk neutrality?
bi = (((N-1)(N+2))/2n^2)*si
What is the symmetric Nash equilibrium strategy for a Dutch auction with common value and i.i.d uniformly distributed private signals and risk neutrality?
bi = (((N-1)(N+2))/2n^2)*si
In an auction with common value and i.i.d uniformly distributed private signals and risk neutrality, the Dutch auction is strategically equivalent to which other auction?
First-price sealed-bid
In an auction with common value and i.i.d uniformly distributed private signals and risk neutrality, a first-price sealed-bid auction is equivalent to which other auction?
Dutch auction
What is the symmetric Nash equilibrium strategy of a second-price sealed-bid auction with common value and i.i.d uniformly distributed private signals and risk neutrality?
bi = (1/N + 1/2)*si
In an auction with common value and i.i.d uniformly distributed private signals and risk neutrality, what is the expected price paid in a first-price sealed-bid and second-price sealed bid auction?
((N-1)/N)bi = (((N-1)(N+2))/2n^2)si
In an English auction with common value and i.i.d uniformly distributed private signals and risk neutrality, what is the symmetric equilibrium strategy?
To stay until the price reaches a weighted average of the observed signals and their own signal
What is the general idea of the no-trade theorem?
When a good has common value, someone wanting to sell it may signal that the value is lower than the price
What is the key lesson of the beauty contest game?
If others don’t play the Nash equilibrium strategy, you shouldn’t either
What is the general lesson of k-level reasoning?
The best strategy is to try to play 1 level ahead of your opponent
In general, in auctions with common value, what is the outcome of increasing the number of participants?
A greater risk of the winner’s curse, so should bid a smaller proportion of private signal
What are the 5 negotiation genius blind spots?
Parties away from the table Decision rule Information advantage Strength of competition What is just in front of your eyes
