Why auction theory won two American economists a Nobel Memorial Prize.
Think of what happens when you bid for a house at an auction.
As a bidder you’re going to behave strategically, based on the available information, in competition with other bidders.
You’ll take into consideration what you know about the house, but also what you believe other people know about the house.
But what’s the best format for an auction?
If you had to submit a sealed-bid without knowing the bids of others at the auction, what would your strategy be?
What if the bids were public and you could adjust your bid after hearing the bids of others? Your strategy would be very different.
An auction’s “design” has a huge bearing on its outcome.
Want to comment on this posting? See the “Comment” box below.