The optimal bid in a first-price,sealed-bid auction with independent private values is to bid:

Question

Quizplus · Accepted Answer

In a first-price, sealed-bid auction with independent private values, each bidder has a private estimate of the item's true value. Bidders may bid more or less than their private estimate, but the optimal bid is to bid less than their private estimate to increase the chances of winning the auction and paying a lower price. This is because the highest bidder wins the auction, but pays the price of their own bid, regardless of the other bidders' bids. Therefore, bidding less than the true value increases the likelihood of winning the auction at a lower price. Bidding more than the true value may result in winning the auction, but paying more than the item is worth.

The Optimal Bid in a First-Price,sealed-Bid Auction with Independent Private