Thinking Strategically: An Auction Experiment

Please fill out the form below. Note that the "scenario" is provided solely for color: The simulation is for cash.

Scenario:

You are one of two connoisseurs involved in the sealed-bid auction of a rare bottle of wine. The wine being sold is worth $xx to you (an amount to be determined below), that is, you would be indifferent between losing the auction, and paying this amount for the bottle. Having sized up your opponent, you think it could be worth anything between $0 and $100 to him. (He has probably sized you up similarly.) The two valuations are subjective -- primarily matters of taste -- and therefore it is reasonable to assume that they are independent, i.e., the value you assign to the wine should not affect your assessment of his valuation. (Whoever wins the auction will drink the wine.)

The seller will unseal both bids, and will sell the bottle to the high bidder. We'll consider two different pricing rules: Under the first, the seller will collect from the winner a price equal to that bidder's bid. Under the second, the seller will collect from the winner a price equal to the (lower) losing bid.

Simulation (of the first auction):

On the form below, you will use personal, private information to determine the actual value of the bottle of wine to you. You will have a pair of values, and will make two bids. (This is to avoid discriminating against those with "low" privately-determined values.)

In class, I will (1) select two of the forms at random, and (2) use two coin flips to choose either the bid associated with Value #1 or the bid associated with Value #2 for each of the two bidders. The higher of the bidders will be sold the "wine" for the amount of his or her bid, and I will immediately redeem it for his or her actual value. (You needn't bring money to class: I'll net out the transaction.)

Please don't consult with any of your classmates before submitting this form.

An Auction Experiment: Response Sheet

To begin, enter your name and your student identification number. DON'T press the 'Enter' key until the form is complete: Move from field to field using your mouse, or the 'Tab' key.

Name:

Student ID Number:

Next, write down the two-digit number formed by the last two digits of your ID number:

Value #1:

And now, subtract this number from 99, obtaining a second number between 0 and 99:

Value #2:

First, we consider a standard sealed-bid auction, where the higher of the two submitted bids wins, and the winner pays the amount he or she bid.

Assuming the value of the wine (to you) to be Value #1:

What will you bid for the wine? $
How likely do you think it is that your bid will win? %

Assuming the value of the wine (to you) to be Value #2:

What will you bid for the wine? $
How likely do you think it is that your bid will win? %

Now, we consider an auction where the higher of the two submitted bids wins, but the winner only pays the amount of the (lower) losing bid.

Assuming the value of the wine (to you) to be Value #1:

What will you bid for the wine? $
How likely do you think it is that your bid will win? %

Assuming the value of the wine (to you) to be Value #2:

What will you bid for the wine? $
How likely do you think it is that your bid will win? %

When you are finished, click here: