24. Asymmetric information: auctions and the winner's curse

Game Theory (ECON 159)We discuss auctions. We first distinguish two extremes: common values and private values. We hold a common value auction in class and discover the winner's curse, the winner tends to overpay. We discuss why this occurs and how to avoid it: you should bid as if you knew that your bid would win; that is, as if you knew your initial estimate of the common value was the highest. This leads you to bid much below your initial estimate. Then we discuss four forms of auction: first-price sealed-bid, second-price sealed-bid, open ascending, and open descending auctions. We discuss bidding strategies in each auction form for the case when values are private. Finally, we start to discuss which auction forms generate higher revenues for the seller, but a proper analysis of this will have to await the next course.00:00 - Chapter 1. Auctions: Common versus Private Values08:16 - Chapter 2. Auctions: Winner's Curse in the First-Price Sealed-Bid Auction42:38 - Chapter 3. Auctions: Other Types of Auction58:35 - Chapter 4. Auctions: Revenue Generation in Different Types of AuctionsComplete course materials are available at the Yale Online website: online.yale.eduThis course was recorded in Fall 2007. Learn more about your ad choices. Visit megaphone.fm/adchoices