scholarly journals Countering the winner's curse: Optimal auction design in a common value model

2020 ◽  
Vol 15 (4) ◽  
pp. 1399-1434
Author(s):  
Dirk Bergemann ◽  
Benjamin Brooks ◽  
Stephen Morris
Keyword(s):  
Expected Value ◽  
Winner's Curse ◽  
English Auctions ◽  
Auction Design ◽  
Winner’S Curse ◽  
Common Value ◽  
Optimal Mechanism ◽  
Optimal Auction ◽  
Value Model ◽  
Posted Price

We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of the bidders' independent signals. If the revenue maximizing solution is to sell the object with probability 1, then an optimal mechanism is simply a posted price, namely, the highest price such that every type of every bidder is willing to buy the object. If the object is optimally sold with probability less than 1, then optimal mechanisms skew the allocation toward bidders with lower signals. The resulting allocation induces a “winner's blessing,” whereby the expected value conditional on winning is higher than the unconditional expectation. By contrast, standard auctions that allocate to the bidder with the highest signal (e.g., the first‐price, second‐price, or English auctions) deliver lower revenue because of the winner's curse generated by the allocation. Our qualitative results extend to more general common value environments with a strong winner's curse.

scholarly journals Selling to Intermediaries: Optimal Auction Design in a Common Value Model

2017 ◽  
Author(s):  
Dirk Bergemann ◽  
Benjamin A. Brooks ◽  
Stephen Edward Morris
Keyword(s):  
Auction Design ◽  
Common Value ◽  
Optimal Auction ◽  
Value Model

scholarly journals Optimal Auction Design in a Common Value Model

2016 ◽  
Author(s):  
Dirk Bergemann ◽  
Benjamin A. Brooks ◽  
Stephen Morris
Keyword(s):  
Auction Design ◽  
Common Value ◽  
Optimal Auction ◽  
Value Model

scholarly journals Efficiency in Auctions with Private and Common Values: An Experimental Study

2002 ◽  
Vol 92 (3) ◽  
pp. 625-643 ◽  
Author(s):  
Jacob K Goeree ◽  
Theo Offerman
Keyword(s):  
Experimental Study ◽  
Expected Value ◽  
Winner's Curse ◽  
Winner’S Curse ◽  
The Public ◽  
Common Values ◽  
Common Value ◽  
Price Auction ◽  
The Common ◽  
Release Of Information

Auctions are generally not efficient when the object's expected value depends on private and common value information. We report a series of first-price auction experiments to measure the degree of inefficiency that occurs with financially motivated bidders. While some subjects fall prey to the winner's curse, they weigh their private and common value information in roughly the same manner as rational bidders, with observed efficiencies close to predicted levels. Increased competition and reduced uncertainty about the common value positively affect revenues and efficiency. The public release of information about the common value also raises efficiency, although less than predicted.

Anomalies: The Winner's Curse

1988 ◽  
Vol 2 (1) ◽  
pp. 191-202 ◽  
Author(s):  
Richard H Thaler
Keyword(s):  
Field Studies ◽  
Risk Averse ◽  
Common Phenomenon ◽  
Winner's Curse ◽  
Winner’S Curse ◽  
Empirical Question ◽  
Common Value ◽  
Winning Bidder ◽  
Common Value Auction ◽  
Very High

Next time that you find yourself a little short of cash for lunch, try the following experiment in your class. Take a jar and fill it with coins, noting the total value of the coins. Now auction off the jar to your class (offering to pay the winning bidder in bills to control for penny aversion). Chances are very high that the following results will be obtained: (1) the average bid will be significantly less than the value of the coins (bidders are risk averse); (2) the winning bid will exceed the value of the jar. Therefore, you will have money for lunch, and your students will have learned first-hand about the “winner's curse.” The winner's curse cannot occur if all the bidders are rational, so evidence of a winner's curse in market settings would constitute an anomaly. However, acting rationally in a common value auction can be difficult. Solving for the optimal bid is not trivial. Thus, it is an empirical question whether bidders in various contexts get it right or are cursed. I will present some evidence, both from experimental and field studies, suggesting that the winner's curse may be a common phenomenon.

scholarly journals Separating Bayesian Updating from Non-Probabilistic Reasoning: An Experimental Investigation

2016 ◽  
Vol 8 (2) ◽  
pp. 39-60 ◽  
Author(s):  
Dan Levin ◽  
James Peck ◽  
Asen Ivanov
Keyword(s):  
Experimental Investigation ◽  
Probabilistic Reasoning ◽  
Bayesian Updating ◽  
Winner's Curse ◽  
Winner’S Curse ◽  
Common Value ◽  
Dutch Auction ◽  
Price Auction ◽  
Reasoning Skills ◽  
Decision Tasks

Through a series of decision tasks involving colored cards, we provide separate measures of Bayesian updating and non-probabilistic reasoning skills. We apply these measures to (and are the first to study) a common-value Dutch auction. This format is more salient than the strategically equivalent first-price auction and silent Dutch formats in hinting that one should condition one's estimate of the value on having the highest bid. Both Bayesian updating skills and non-probabilistic reasoning skills are shown to help subjects correct for the winner's curse, as does the saliency of the active-clock Dutch format. (JEL D12, D44, D83)

The Winner's Curse and Public Information in Common Value Auctions: Reply

1999 ◽  
Vol 89 (1) ◽  
pp. 325-334 ◽  
Author(s):  
Colin M Campbell ◽  
John H Kagel ◽  
Dan Levin
Keyword(s):  
Public Information ◽  
Winner's Curse ◽  
Winner’S Curse ◽  
Common Value ◽  
Common Value Auctions
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