Common value - Module 5

Question 1

In theory, with risk neutral agents, should agents bid more or less in an auction with common value or private values?

Answer 1

More in private, less in common

Question 2

What assumption is required for agents to be able to learn other’s private signals in an English auction?

Answer 2

That other players are rational

Question 3

In an auction with common value, what do individual agents have?

Answer 3

Private signals

Question 4

What is the winner’s curse?

Answer 4

The tendency for the highest bid in an auction with common value to be higher than the value of the good

Question 5

What is the main cause of the winner’s curse?

Answer 5

The individual with the highest private signal tends to bid the highest, over-estimating the common value of the good and overpaying

Question 6

What do we assume regarding private signals when theoretically considering auctions with common value?

Answer 6

Private signals are i.i.d and follow a uniform distribution [0,1]

Question 7

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?

Answer 7

bi = (((N-1)(N+2))/2n^2)*si

Question 8

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?

Answer 8

bi = (((N-1)(N+2))/2n^2)*si

Question 9

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?

Answer 9

First-price sealed-bid

Question 10

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?

Answer 10

Dutch auction

Question 11

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?

Answer 11

bi = (1/N + 1/2)*si

Question 12

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?

Answer 12

((N-1)/N)bi = (((N-1)(N+2))/2n^2)si

Question 13

In an English auction with common value and i.i.d uniformly distributed private signals and risk neutrality, what is the symmetric equilibrium strategy?

Answer 13

To stay until the price reaches a weighted average of the observed signals and their own signal

Question 14

What is the general idea of the no-trade theorem?

Answer 14

When a good has common value, someone wanting to sell it may signal that the value is lower than the price

Question 15

What is the key lesson of the beauty contest game?

Answer 15

If others don’t play the Nash equilibrium strategy, you shouldn’t either

Question 16

What is the general lesson of k-level reasoning?

Answer 16

The best strategy is to try to play 1 level ahead of your opponent

Question 17

In general, in auctions with common value, what is the outcome of increasing the number of participants?

Answer 17

A greater risk of the winner’s curse, so should bid a smaller proportion of private signal

Question 18

What are the 5 negotiation genius blind spots?

Answer 18

Parties away from the table
Decision rule
Information advantage
Strength of competition
What is just in front of your eyes