Question 1

In auctions,the winner always pays a price equal to the highest (his)bid.

Accepted Answer

There are also second-price auctions in which the winner pays a price equal to the second highest bid.

Question 2

What is an example of the bidder's curse?
A) addiction to auctions
B) paying less than the auctioned good value
C) Bid a value that is higher than the price of the good at a retail store.
D) Never win an auction.

Accepted Answer

The bidder's curse occurs when a bidder overestimates the value of an item being auctioned and ends up winning it at a higher price than what the item is actually worth. Bidding a value that is higher than the price of the good at a retail store is an example of the bidder's curse. Choices A, B, and D do not reflect the bidder's curse.

Question 3

Explain why it is unwise to bid more than your valuation of the good in a sealed bid second-price auction.

Accepted Answer

The answer of Explain why it is unwise to bid...

Question 4

Which of the following factors affecting decision-making is studied by Behavioral Game Theory?
A) psychological biases
B) limited power of calculation
C) weather forecast
D) A and B are correct

Accepted Answer

Behavioral Game Theory explores the psychological factors that influence decision-making, including biases and limitations in cognitive processing. The weather forecast is not a factor studied by this field. Therefore, both choices A and B are correct.

Question 5

Winner's curse is likely to happen in which of the following auctions?
A) unexplored oil reserves
B) corn stored in a warehouse
C) 1,000 ton of iron ore
D) U.S. Treasury Bonds

Accepted Answer

Winner's curse is more likely to happen in auctions where the value of the item being auctioned is uncertain and where bidders have varying information about its value. In the case of unexplored oil reserves, for example, the winning bidder may overestimate the potential value and end up paying more than the reserves are worth, leading to a winner's curse. In contrast, corn stored in a warehouse or iron ore is more easily measurable and therefore may not lead to winner's curse as often. US Treasury bonds are also less likely to lead to winner's curse because their value is well-known and bidders have access to the same information.

Question 6

Laboratory experiments of the ultimatum games revealed that
A) participants' actions were always part of a Nash equilibrium.
B) participants always split the money equally.
C) the first mover always kept the smaller share.
D) the first mover always kept the largest share.

Accepted Answer

In ultimatum games, the first mover (the proposer) decides how to split a sum of money with a second player (the responder), who then accepts or rejects the offer. If the offer is rejected, both players get nothing. Laboratory experiments have shown that the first mover often proposes a split that favors themselves but still offers a significant share to the second player to avoid rejection, thus typically keeping the larger share.

Question 7

Which auctioned good is more likely to have different private values across potential bidders?
A) a truckload of sand
B) a Monet painting
C) a brand new car
D) a gold bar

Accepted Answer

A Monet painting is a unique and subjective item, which means that each bidder's private value may differ based on their personal preferences and interpretation of the artwork. In contrast, the other items listed (a truckload of sand, a brand new car, and a gold bar) are more standardized and have more objective value, making it less likely that potential bidders will have drastically different private values.

Question 8

In Dutch or first-price sealed-bid auctions,participants will bid less than their highest valuation.

Accepted Answer

They do so because they have to balance the benefit of paying less with the cost of not getting the good.

Question 9

Which auctioned good is more likely to have a common value across potential bidders?
A) a truckload of baseball memorabilia
B) a Monet painting
C) a customized car
D) timber

Accepted Answer

Timber is more likely to have a common value across potential bidders because it is a commodity with a well-established market price based on factors such as quality, quantity, and demand. The other options have subjective values that may differ among bidders.

Quiz 14: Game Theory

In auctions,the winner always pays a price equal to the highest (his)bid.

What is an example of the bidder's curse?

Explain why it is unwise to bid more than your valuation of the good in a sealed bid second-price auction.

Which of the following factors affecting decision-making is studied by Behavioral Game Theory?

Winner's curse is likely to happen in which of the following auctions?

Laboratory experiments of the ultimatum games revealed that

Which auctioned good is more likely to have different private values across potential bidders?

In Dutch or first-price sealed-bid auctions,participants will bid less than their highest valuation.

Which auctioned good is more likely to have a common value across potential bidders?