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mt3sol-f06

# mt3sol-f06 - CS 161 Fall 2006 Computer Security...

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CS 161 Computer Security Fall 2006 Joseph/Tygar MT 3 Solutions Problem 1. [Auctions] (20 points) This question will consider different types of auctions. For each auction type, we will ask you to describe how it works, and then to describe whether it ever makes sense for a bidder to bid less than his or her actual valuation (that is, the amount he or she considers to be a fair price for the item being sold.) Of course, the bidder wants to achieve the lowest price possible. Here is an example: (x) How does a sealed bid auction work? Does it ever make sense for a bidder to bid less than the actual valuation? A: In a sealed bid auction, each of the bidders sends a sealed, secret bid to the auctioneer, that only the auctioneer can read. The auctioneer sells the item to the highest bidder at the price bid. In some cases, it makes sense to bid less that the actual valuation; if a bidder suspects she will be the highest bidder, then she should only bid slightly more than what she expects the second highest-bid to be: in that way, she can save substantial money. Answer the following (maximum 4 sentences each): (a) (10 points) How does a Dutch auction work? Does it ever make sense for a bidder to bid less than his or her actual valuation? The price starts high and goes down. The first person to bid wins, and pays whatever price the bid was at. If you know that everybody else is going to wait until a low price to bid, it makes sense to bid below your actual valuation. (b) (10 points) How does a second price ”Vickrey” auction work? Does it ever make sense for a bidder to bid less than his or her actual valuation? Bids are submitted secretly.

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mt3sol-f06 - CS 161 Fall 2006 Computer Security...

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