Second-price,sealed-bid auctions have rules that are incentive-compatible because:

Question

Quizplus · Accepted Answer

In a second-price, sealed-bid auction, bidders have an incentive to submit their true valuations of the item being auctioned. This is because the auction format ensures that the winning bidder pays the second-highest bid, rather than the highest bid. Therefore, bidders have an incentive to reveal their true valuation, so that they have a chance of winning the auction at a lower price. This makes the auction rules incentive-compatible. Options A, B, D, and E do not accurately reflect the rules of a second-price, sealed-bid auction.

Second-Price,sealed-Bid Auctions Have Rules That Are Incentive-Compatible Because