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​Economic Growth Centre Seminar | Rationalizable Bidding in Second-Price Auction and English Auction

Published on: 03-Dec-2018

EventRationalizable Bidding in Second-Price Auction and English Auction
Dr Chih-Chun Yang
Assistant Research Fellow
Institute of Economics
Academia Sinica
Date3 December 2018 (Monday)
VenueHSS Conference Room (HSS-05-57)
Time1:00pm – 2:30pm

Within private value framework, “truth-telling bidding” (i.e., bidding up to own valuation) in English auction and overbidding in second price auction (SPA) are well documented behaviors in experiments. A recent experiment by Garatt, Walker, and Wooders [Experimental Economics, 15 (2012), 44-57] for SPA even showed that the subjects who regularly participate in eBay auctions exhibit significant underbidding, too. These findings showed a failure of weakly dominant strategy theory in SPA and a breakdown of the strategic equivalence between SPA and English auction. We hence develop an alternative theory in an experimental environment where the private values are drawn from a full-support distribution, which is common knowledge among bidders. We show that in English auction, truth-telling bidding is unique behavior in “rationally and common belief of rationality” (RCBR); moreover, under a weak restriction on beliefs, then merely “rationality and mutual belief of rationality” implies truth-telling. In contrast, in second-price auction, every bidding strategy is consistent with RCBR.  

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