Deck 5: The Winners Curse and Auction Behavior

Question 1

A sealed bid auction refers to auctions in which bidders do not know the bids of the other players.

Answer 1

True

Question 2

The main difference between a first price auction and a second price auction is the price paid by the highest bidder.

Answer 2

True

Question 3

A Nash Equilibrium is a set of strategies such no player can obtain more utility from deviating from the specified strategy if every other player is playing accordingly.

Answer 3

True

Question 4

There are some auctions for which overbidding your valuation is a Nash Equilibrium.

Question 5

There are two players in a second price auction. Player 1has private information and knows that Player 2 is not playing the Nash Equilibrium strategy and his bidding above his valuation. Player 1 should adjust his bid to ensure he wins the auction.

Question 6

When an experimenter randomly assigns valuations to participants in an ____________auction is called an value.

Question 7

Suppose John and Adam are bidding in an auction. John's valuation is greater than Adam's valuation. Depending in which type of auction John and Adam are participating, there exists a Nash Equilibrium where Adam wins the auction.

Question 8

Risk aversion may increase the equilibrium bids in first and second price auctions.

Question 9

In the laboratory, it has been shown that the English auction and the Vickrey auction do not always result in the same final price. Oftentimes, people overbid in the Vickrey auction. One possible behavioral explanation for this difference is anchoring: subjects anchor on the induced value and then adjust upwards.

Question 10

When behavioral economists observe the "anchoring and adjustment" mechanism it always means that subjects anchor on the value suggested and then adjust upwards.

Question 11

If I overbid in an auction, then I am a victim of the winner's curse.

Question 12

The notion behind the fully cursed equilibrium is that bidders know the distribution of actions taken by the other bidders but do not make any relationship between these actions and the underlying valuations.

Question 13

Consider a first price sealed auction where the bidders' valuations are drawn from a uniform distribution $[0, \bar{v}]$ . As the number of bidders increases, so does the expected value of the highest bid.

Question 14

A Dutch Auction is to a second price sealed bid auction as an English Auction is to a first price sealed bid auction.

Question 15

When one individual's behavior affects the outcomes of another individual, then economists say that these two individuals are engaged in

A) An auction.
B) A game.
C) A tournament.
D) An interaction.

Question 16

Dawn and Tina are engaged in a second price auction for 107. $x$ . Dawn bids $\$ 10$ and Tina bids $\$ 13$ . Who wins the auction and how much do the pay for $x$ ?

A) Dawn wins and pays $\$ 10$ .
B) Tina wins and pays $\$ 13$ .
C) Tina wins and pays $\$ 10$ .
D) Not enough information.

Question 17

What is the difference between a Vickrey auction and a second price auction?

A) A Vickrey auction is a special case of a second price auction. It is a sealed bid second price auction.
B) In a Vickrey auction the highest bidder does not always win the object.
C) In a Vickrey auction the highest bidder wins and pays his bid.
D) A Vickrey auction is a special case of a second price auction. It is an open bid second price auction.

Question 18

Which of the following is not an explanation for "sniping" behavior in second-price auctions?

A) Other bidders are not playing Nash Equilibrium.
B) You can increase your pay-off by bidding at the end.
C) The belief that you are in a sequential second second-price auction.
D) As the bidding continues you increase your attachment to the object and your valuation increases.

Question 19

Which of the following is true about first and second price auction?

A) The final price is determined by the highest bid.
B) The bidder with the highest bid wins.
C) The final price is determined by the second highest bid.
D) All bidders have a dominant strategy.

Question 20

In the rational model, what is the source of uncertainty in a first price auction?

A) Your own valuation.
B) The 111. being auctioned.
C) The identity of the other bidders.
D) The other players' valuations.

Question 21

What is a common value auction?

A) An auction for a public good.
B) An auction in which all bidders pay for the good, but only one bidder keeps the good.
C) An auction in which the valuation is not subjective.
D) An auction in which the valuation is subjective, but all bidders have the same valuation.

Question 22

Which of the following are true statements?

A) All bidders in an auction can fall victim to the winner's curse by overbidding.
B) The bidder with the highest valuation is most likely to fall victim to the winner's curse.
C) Any bidder that overbids in an auction can fall victim to the winner's curse.
D) If a bidder bids over his own valuation then he has fallen victim to the winner's curse.

Question 23

When does the solution to the X-cursed equilibrium and the solution to the Nash equilibrium coincide?

A) Never.
B) When $\mathrm{X}=1$ .
C) When $\mathrm{X}=0$ .
D) Always.

Question 24

In a first price auction where all bidders have values drawn from a uniform distribution $[0, \bar{v}]$ and all bidders are playing Nash Equilibrium strategies then the auctioneer can expect to make the most money with

A) 2 bidders.
B) 10 bidders.
C) The final price does not depend on the number of bidders.
D) More than 10 bidders.

Question 25

Rafael and Ginele are the only bidders in a Vickrey auction for a collectible basketball card. Rafael values the card at $\$ 73$ and Ginele values the card at $\$ 67$ . How does Rafael's bid depend on Ginele's bid?

Question 26

Why do prices in the market not suffer from the same problem as prices determined through auctions?

Question 27

Suppose Jack and Jill are bidding in a first price auction. Jack and Jill's valuations are drawn from a uniform distribution between $[0,10]$ . Jack's valuation is 5.2 and Jill's valuation is 4.8.
a. What are their equilibrium bids?
Jack bids 4.89 and Jill bids 4.52 .
c. Are your answers to (a) and (b) different? Why? What happens to their equilibrium bid functions as the number of bidders goes to $\infty$ ?
As the number of bidders goes to infinity, then $\frac{n-1}{n} \rightarrow 1$ and Jack and Jill bid their valuation.

Question 28

What effect can risk aversion have on bids in a first price auction?

Question 29

In a first price auction, if all bidders bid their value what is the expected payoff of the bidder with the highest valuation?

Question 30

In 3 sentences describe why the English auction and the Vickrey auction result in the same price and winner.