Podcast
Questions and Answers
What characterizes a Bayesian Nash Equilibrium in games of incomplete information?
What characterizes a Bayesian Nash Equilibrium in games of incomplete information?
- All players have perfect information about others' payoffs.
- Players maximize expected payoffs based solely on their own type.
- At least one player knows exactly what others’ valuations are.
- Players do not deviate from their strategy based on beliefs of others' types. (correct)
In an English auction, when does the auction end?
In an English auction, when does the auction end?
- As soon as a reserve price is reached.
- When the auctioneer manually closes the bidding.
- When a player signals they are dropping out.
- When no one is willing to exceed the current highest bid. (correct)
Which type of auction begins at a price above the expected winning bid?
Which type of auction begins at a price above the expected winning bid?
- Second-price, sealed-bid auction.
- English auction.
- Dutch auction. (correct)
- First-price, sealed-bid auction.
What is meant by valuations being 'private' in an auction context?
What is meant by valuations being 'private' in an auction context?
Which of the following correctly describes the trade-off in all auction formats?
Which of the following correctly describes the trade-off in all auction formats?
In which type of auction does the winner pay the second highest bid?
In which type of auction does the winner pay the second highest bid?
What is a common application of a sealed-bid auction?
What is a common application of a sealed-bid auction?
How is information conveyed in an English auction?
How is information conveyed in an English auction?
What condition weakly dominates any bid that is equal to or greater than the valuation in both English and Dutch auctions?
What condition weakly dominates any bid that is equal to or greater than the valuation in both English and Dutch auctions?
In the first-price sealed-bid auction, what bid does Tom choose to maximize his payoff given the valuations?
In the first-price sealed-bid auction, what bid does Tom choose to maximize his payoff given the valuations?
What is the Nash equilibrium bid for Anne in the 1st price sealed-bid auction given her valuation?
What is the Nash equilibrium bid for Anne in the 1st price sealed-bid auction given her valuation?
What happens when both bidders in the 2nd price sealed-bid auction bid 12?
What happens when both bidders in the 2nd price sealed-bid auction bid 12?
In a Dutch auction, when does Tom choose to bid?
In a Dutch auction, when does Tom choose to bid?
What is the outcome of the auction formats given complete information regarding valuations?
What is the outcome of the auction formats given complete information regarding valuations?
According to the revenue equivalence theorem, what determines the seller's value for the object across different auction formats?
According to the revenue equivalence theorem, what determines the seller's value for the object across different auction formats?
What bidding strategy does Tom adopt as bid increments approach zero in the first-price sealed-bid auction?
What bidding strategy does Tom adopt as bid increments approach zero in the first-price sealed-bid auction?
In the English auction scenario, what is Anne's maximum bid given her known valuation?
In the English auction scenario, what is Anne's maximum bid given her known valuation?
Flashcards
Incomplete Information
Incomplete Information
At least one player lacks complete information about another player's payoff or preferences. For example, one player might not know another player's production costs, risk aversion, or willingness to pay.
Bayesian Nash Equilibrium
Bayesian Nash Equilibrium
A strategy chosen by a player in a game where they do not have full information, where their choice is based on their own type and their beliefs about the types of other players.
First-Price Sealed-Bid Auction
First-Price Sealed-Bid Auction
An auction where buyers submit sealed bids, and the highest bidder wins and pays their bid. Often used for TV rights, licenses and government contracts.
Valuation (max WTP)
Valuation (max WTP)
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Second-Price Sealed-Bid Auction
Second-Price Sealed-Bid Auction
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Common Valuation
Common Valuation
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Private Valuation
Private Valuation
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English Auction
English Auction
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Valuation (Vi)
Valuation (Vi)
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Bid (bi)
Bid (bi)
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Payoff (Ui)
Payoff (Ui)
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Dutch Auction
Dutch Auction
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Dominant Strategy
Dominant Strategy
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Revenue Equivalence Theorem
Revenue Equivalence Theorem
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Study Notes
Games of Incomplete Information: Auctions
- Auctions involve trading items of value
- Examples include mobile phone licenses, TV rights, works of art, public infrastructure projects, and online sales
- Auction design impacts maximizing revenue
- Valuations (maximum willingness to pay) can vary between buyers (either private or common)
Incomplete Information
- Incomplete information occurs when at least one player doesn't fully know another player's payoff for certain
- Players may signal their true type or hide it
- Rational players maximize expected payoff based on their own type and their beliefs about other players' types
- Bayesian Nash Equilibrium is a refined equilibrium solution where no player deviates from their strategy, given their type and beliefs about other player types
Auction Types
- English Auction: Oral, ascending bid, first-price auction
- Starts at a zero or reserve price
- Ends when no one is willing to exceed the current highest bid
- Winner pays their bid
- Used for antiques, paintings, property, etc.
- Dutch Auction: Oral, descending bid, first-price auction
- Starts at a price above the expected winning bid
- Gradually declines until a bid is made
- Winner pays their bid
- Used in Dutch flower market, Sydney fish market
- First-Price, Sealed-Bid Auction: Players submit sealed bids simultaneously; highest bid wins, winner pays their bid
- Used for TV rights, licenses, tenders
- Second-Price, Sealed-Bid Auction: Similar to the first-price sealed-bid, but the winner pays the second-highest bid
Valuations
- Private Valuation: Each bidder knows their own valuation precisely, but valuations may differ
- Common Valuation: Items have (approximately) the same expected value for all bidders, but the estimate might vary
- Can apply to contracts for transport, construction, and exploration, etc.
Valuations, Bids, and Payoffs
- Formulas show payoffs based on bids and valuations of two bidders
Benchmark: Complete Information
- In scenarios with two bidders (Tom & Anne) and common knowledge of their private valuations, the outcomes are similar across auction types.
- The highest valuation wins, and the winner pays the second-highest valuation.
- The seller receives the same value, irrespective of the auction format; the revenue equivalence theorem applies.
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Description
This quiz explores the dynamics of auctions under conditions of incomplete information. It covers various auction types, the impact of auction design on revenues, and the concept of Bayesian Nash Equilibrium. Test your understanding of how players strategize in bidding scenarios with varying valuations.
