The optimal strategy for a risk neutral bidder in a second-price, sealed-bid auction with independent private values is to bid

Question

Quizplus · Accepted Answer

In a second-price, sealed-bid auction with independent private values, the winner is the bidder with the highest bid, but pays the second-highest bid. Thus, the bidder should aim to win the auction by bidding higher than their competitors, but only up to their true valuation. Bidding slightly less than their valuation would decrease their chances of winning, while bidding slightly higher would overpay if they win, and if they lose, they would be worse off as well. Therefore, bidding their true valuation remains the optimal strategy for a risk-neutral bidder in this auction format.

The Optimal Strategy for a Risk Neutral Bidder in a Second-Price