Intermediate Microeconomics · free preview
Common Values and the Winner's Curse
When the item's value is the same for all but uncertain, bids are estimates and the highest estimate is biased upward, the winner's curse, disciplined by shading, and auction design must confront information linkage rather than private risk alone.
1. From private to common values
From private to common values
2. The curse quantified
The curse quantified
3. What breaks in design
What breaks in design
4. The equilibrium half-course closes
The equilibrium half-course closes
5. The defining feature
What makes an auction a common-value setting?
6. Why the winner overpays
Five bidders with unbiased estimates around a common value. Why does the naive winner lose money on average?
7. The rational response
How should a sophisticated common-value bidder bid?
8. Format choice under common values
Why do sellers prefer open ascending formats when values are common?
9. The number's bias
Estimates around 100: bidders see 85, 93, 102, 110, 118. What does the highest-estimate bidder pay if she bids her estimate? Write the number.
10. The curse's bite
Same auction, subtract the true value 100 from the naive winner's payment. Write her per-unit loss.
11. Shading to the order statistic
With five unbiased estimates around a true value of 100, the naive winner bids her estimate of 118 and loses 18. What is the standard repair?
12. More rivals, worse curse
If the bidder count rises from five to ten, what happens to the naive winner's expected loss?
13. The open format's gift
Why does the open ascending auction soften the winner's curse relative to sealed bidding?
14. Bidding the runner-up's number
If the naive 118 bidder had instead bid the second-highest estimate of 110, what would her loss be?
15. Loss at the runner-up's bid
The second-highest estimate is 110 and the true value is 100. Compute the loss from paying 110, and write the number.
16. Optimists in the sample
Among the estimates 85, 93, 102, 110, and 118, how many exceed the true value of 100? Write the number.
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