1. The Dean of Columbia College is looking for a tenured professor to teach in the Core Curriculum. Monetary incentives are needed to get someone interested, but how much? The Dean decides to use an auction to do the job. Two professors, equally qualified, applied for the position. The two professors are invited to covertly submit their bids to the Dean. The Dean will give the position to the professor who submits the lower bid (if there is a tie, the job is assigned randomly). The professor who gets the job will be paid his/her own bid. Each professor's reservation value for teaching the course is his/her private information. It is common knowledge that their reservation values are independently and uniformly distributed over [0, 100]. So if a professor with a reservation value of 50 wins with a bid of 60, his payoff is 60 – 50 = 10.' (a) Find a Bayesian Nash equilibrium of the bidding game. (b) Suppose the two professors' reservation values are 60 and 70, respec- tively. What are their bids in the Bayesian Nash equilibrium you computed in part (a)? Who is the winner? What's the payoff of the
1. The Dean of Columbia College is looking for a tenured professor to teach in the Core Curriculum. Monetary incentives are needed to get someone interested, but how much? The Dean decides to use an auction to do the job. Two professors, equally qualified, applied for the position. The two professors are invited to covertly submit their bids to the Dean. The Dean will give the position to the professor who submits the lower bid (if there is a tie, the job is assigned randomly). The professor who gets the job will be paid his/her own bid. Each professor's reservation value for teaching the course is his/her private information. It is common knowledge that their reservation values are independently and uniformly distributed over [0, 100]. So if a professor with a reservation value of 50 wins with a bid of 60, his payoff is 60 – 50 = 10.' (a) Find a Bayesian Nash equilibrium of the bidding game. (b) Suppose the two professors' reservation values are 60 and 70, respec- tively. What are their bids in the Bayesian Nash equilibrium you computed in part (a)? Who is the winner? What's the payoff of the
Chapter8: Game Theory
Section: Chapter Questions
Problem 8.11P
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