lecture11 - Game Theory Mike Shor Lecture 11 "A cynic knows...

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Game Theory “A cynic knows the price of everything and the value of nothing.” - Oscar Wilde, Lady Windemere’s Fan Mike    Shor Lecture 11
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What is an Auction? auc tion 1. A public sale in which property or merchandise are sold to the highest bidder. 2. A market institution with explicit rules determining resource allocation and prices on the basis of bids from participants. 3. Games: The bidding in bridge [Latin: aucti ō , aucti ō n – from auctus , past participle of augēre, to increase ] Mike Shor 2
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Examples of Auctions Definition: A market institution with rules governing resource allocation on the basis of bids from participants Over 30% of US GDP moves through auctions: Mike Shor 3 Wine Art Flowers Fish Electric power Treasury bills IPOs Emissions permits Radio Spectrum Import quotas Mineral rights Procurement
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Sample Auction Mike Shor 4 “Mistakes are the portals of discovery” - James Joyce
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Going Once, Going Twice, … Bidding starts at $1 Who will make the first bid? Mike Shor 5
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Overview of Auctions Auctions are a tricky business Different auction mechanisms sealed vs. open auctions first vs. second price Different sources of uncertainty private vs. common value auctions the winner’s curse Mike Shor 6
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Private Value Auction Dinner Mike Shor 7
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Common Value Auction Unproven oil fields Mike Shor 8
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Sources of Uncertainty Private Value Auction Each bidder knows his or her value for the object Bidders differ in their values for the object e.g., memorabilia, consumption items Common Value Auction The item has a single though unknown value Bidders differ in their estimates of the true value of the object e.g., FCC spectrum, drilling, disciplinary corporate takeovers Mike Shor 9
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Open Auctions (sequential)
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This note was uploaded on 03/04/2012 for the course MGT 425 taught by Professor Shor during the Spring '11 term at Vanderbilt.

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lecture11 - Game Theory Mike Shor Lecture 11 "A cynic knows...

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