A cruiser bike is being auctioned in a first-price auction.You always wanted to own a cruiser bike and therefore decide to participate in the auction.You value the bike at $4,000.On the day of the auction,you see that there are seventy other bidders.Your optimal bid in this case is ________.

Question

Quizplus · Accepted Answer

In a first-price auction, the highest bidder wins the item and pays their bid amount. To determine the optimal bid, we need to consider the bidding behaviour of the other bidders. Since there are 70 other bidders and we value the bike at $4,000, it is unlikely that we will win the auction if we bid exactly our value. On the other hand, if we bid too low, we may miss out on the opportunity to win the item. The optimal bid in this case is to bid slightly below our value but high enough to increase our chances of winning. A good rule of thumb is to bid 5-10% below our value, which in this case would be $3,800-$3,600. Therefore, the best choice is D, which is closest to this range.

A Cruiser Bike Is Being Auctioned in a First-Price Auction