Suppose that your personal valuation for a painting is $200. Which auction format would induce you to bid more?
A)First price.
B)Second price.
C)You would bid the same in any format.
D)Depends on the environment.

Question

Quizplus · Accepted Answer

The second price auction format would induce you to bid more because it creates an environment where you can bid your true valuation without fear of paying more than what you think the painting is worth. In a second price auction, the highest bidder wins but only pays the second highest bid amount. Therefore, if you bid $200 and another person bids $150, you would still win the auction but only pay $150. This incentivizes bidders to bid their true valuations because they won't have to pay more than the item is worth to them.

Suppose That Your Personal Valuation for a Painting Is $200