Moe, Larry, Curly, and Shemp are bidding Groucho Marx' rubber duck. Their individualprivate values of the rubber duck are V_M = $50,000, V_L = $60,000, V_C = $70,000 and V_S = $80,000. It is generally believed that the lowest and highest possible values of the house are $40,000 and $100,000, respectively. Curly's optimal strategy is to submit a bid of:

Question

Quizplus · Accepted Answer

Curly's optimal strategy in a common value auction, where bidders may have different private information but the value of the item is the same for everyone, involves bidding a value that is between his own valuation and the expected value of the item based on the information available. Given Curly values the rubber duck at $70,000 and the average of the lowest and highest possible values ($40,000 and $100,000) is $70,000, his optimal bid would be calculated to balance his valuation with the risk of winning the auction at too high a price (the winner's curse). The correct choice, without specific calculation details provided in the question, is inferred to be the one closest to but less than his valuation, which is $62,500. This bid reflects an adjustment for the risk of overestimating the duck's value relative to other bidders.

Moe, Larry, Curly, and Shemp Are Bidding Groucho Marx' Rubber