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Game Theory - Lecture 24

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Lecture 24 - Asymmetric information: auctions and the winner's curse

We discuss auctions. We first distinguish two extremes: common values and private values. We hold a common value auction in class and discover the winner's curse, the winner tends to overpay. We discuss why this occurs and how to avoid it: you should bid as if you knew that your bid would win; that is, as if you knew your initial estimate of the common value was the highest. This leads you to bid much below your initial estimate. Then we discuss four forms of auction: first-price sealed-bid, second-price sealed-bid, open ascending, and open descending auctions. We discuss bidding strategies in each auction form for the case when values are private. Finally, we start to discuss which auction forms generate higher revenues for the seller, but a proper analysis of this will have to await the next course.

Prof. Ben Polak
ECON 159 Game Theory, Fall 2007
(Yale University: Open Yale)
Date accessed: 2009-01-15
License: Creative Commons BY-NC-SA

Lecture Material

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Supplementary lecture material is listed below.

1. Practice Problems on Asymmetric Information [PDF]
2. Solutions to Practice Problems on Asymmetric Information [PDF]



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