Say that you are bidding in a sealed-bid auction and that you really want the item being auctioned. Winning it would be worth $500 to you. Say you expect the next-highest bidder to bid $300. a. In a standard “highest-bid” auction, what bid would a rational person make? The rational choice is to bid $500 since that is what the item is worth to you. The rational choice is to bid a little bit more than $300 because that is the expected next-highest bid. The rational choice is to bid just under $500 so that you have a higher chance of winning the auction and would still have a net benefit. The rational choice is to bid over $500 to guarantee that you win the item. b. In a Vickrey auction, what bid would he make? The rational choice is to bid slightly more than $500. The rational choice is to bid $500. The rational choice is to bid slightly less than $500. The rational choice is to bid slightly more than $300
Say that you are bidding in a sealed-bid auction and that you really want the item being auctioned. Winning it would be worth $500 to you. Say you expect the next-highest bidder to bid $300. a. In a standard “highest-bid” auction, what bid would a rational person make? The rational choice is to bid $500 since that is what the item is worth to you. The rational choice is to bid a little bit more than $300 because that is the expected next-highest bid. The rational choice is to bid just under $500 so that you have a higher chance of winning the auction and would still have a net benefit. The rational choice is to bid over $500 to guarantee that you win the item. b. In a Vickrey auction, what bid would he make? The rational choice is to bid slightly more than $500. The rational choice is to bid $500. The rational choice is to bid slightly less than $500. The rational choice is to bid slightly more than $300
Chapter8: Game Theory
Section: Chapter Questions
Problem 8.12P
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Question
Say that you are bidding in a sealed-bid auction and that you really want the item being auctioned. Winning it would be worth $500 to you. Say you expect the next-highest bidder to bid $300.
a. In a standard “highest-bid” auction, what bid would a rational person make?
b. In a Vickrey auction, what bid would he make?
a. In a standard “highest-bid” auction, what bid would a rational person make?
-
The rational choice is to bid $500 since that is what the item is worth to you.
-
The rational choice is to bid a little bit more than $300 because that is the expected next-highest bid.
-
The rational choice is to bid just under $500 so that you have a higher chance of winning the auction and would still have a net benefit.
-
The rational choice is to bid over $500 to guarantee that you win the item.
b. In a Vickrey auction, what bid would he make?
-
The rational choice is to bid slightly more than $500.
-
The rational choice is to bid $500.
-
The rational choice is to bid slightly less than $500.
-
The rational choice is to bid slightly more than $300.
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