We study the question of auction design in an IPV setting characterized by ambiguity. We assume that the preferences of agents exhibit ambiguity aversion; in particular, they are represented by the epsilon-contamination model. We show that a simple variation of a discrete Dutch auction can extract almost all surplus. This contrasts with optimal auctions under IPV without ambiguity as well as with optimal static auctions with ambiguity—in all of these, types other than the lowest participating type obtain a positive surplus. An important point of departure is that the modified Dutch mechanism is dynamic rather than static, establishing that under ambiguity aversion—even when the setting is IPV in all other respects—a dynamic mechanism can have additional bite over its static counterparts. A further general insight is that the standard revelation principle does not automatically extend to environments not characterized by subjective expected utility

Arup Daripa

Bose

Camerer

Chen

Crawford

Crémer

Ellsberg

Epstein

Gilboa

Grunwald

Huber

Jaffray

Karni

Klibanoff

Maccheroni

Maskin

Matthews

McAfee

Mukerji

Myerson

Nishimura

Pires

Riley

Robert

Seidenfeld

Subir Bose

Volij

Walley

English

In the standard independent private values (IPV) model, each bidder’s beliefs about the values\ud
of any other bidder is represented by a unique prior. In this paper we relax this assumption\ud
and study the question of auction design in an IPV setting characterized by ambiguity: bidders\ud
have an imprecise knowledge of the distribution of values of others, and are faced with a set\ud
of priors. We also assume that their preferences exhibit ambiguity aversion. We show that a\ud
simple variation of a discrete Dutch auction can extract almost all surplus. This contrasts with\ud
optimal auctions under IPV without ambiguity as well as with optimal static auctions with ambiguity - in all of these, types other than the lowest participating type obtain a positive surplus.\ud
And, unlike the well-known Cremer-McLean mechanism, our modified Dutch mechanism satisfies limited liability. An important point of departure is that the modified Dutch mechanism\ud
we consider is dynamic rather than static, establishing that under ambiguity aversion–even\ud
when the setting is IPV in all other respects–a dynamic mechanism could have additional bite\ud
over its static counterparts

Bose, S.

Daripa, Arup

Name not available

A dynamic mechanism and surplus extraction under ambiguity

Crossref

In the standard independent private values (IPV)model, each bidder’s beliefs about the values
of any other bidder is represented by a unique prior. In this paper we relax this assumption
and study the question of auction design in an IPV setting characterized by ambiguity: bidders
have an imprecise knowledge of the distribution of values of others, and are faced with a set of
priors. We also assume that their preferences exhibit ambiguity aversion; in particular, they are
represented by the epsilon-contamination model. We show that a simple variation of a discrete
Dutch auction can extract almost all surplus. This contrasts with optimal auctions under IPV
without ambiguity as well as with optimal static auctions with ambiguity - in all of these,
types other than the lowest participating type obtain a positive surplus. An important point
of departure is that the modified Dutch mechanism we consider is dynamic rather than static,
establishing that under ambiguity aversion–even when the setting is IPV in all other respects–a
dynamic mechanism can have additional bite over its static counterparts

Subir Bose (7591286)

Arup Daripa (7591289)

Leicester Research Archive

In the standard independent private values (IPV) model, each bidder’s beliefs about the values

of any other bidder is represented by a unique prior. In this paper we relax this assumption

and study the question of auction design in an IPV setting characterized by ambiguity: bidders

have an imprecise knowledge of the distribution of values of others, and are faced with a set

of priors. We also assume that their preferences exhibit ambiguity aversion. We show that a

simple variation of a discrete Dutch auction can extract almost all surplus. This contrasts with

optimal auctions under IPV without ambiguity as well as with optimal static auctions with ambiguity - in all of these, types other than the lowest participating type obtain a positive surplus.

And, unlike the well-known Cremer-McLean mechanism, our modified Dutch mechanism satisfies limited liability. An important point of departure is that the modified Dutch mechanism

we consider is dynamic rather than static, establishing that under ambiguity aversion–even

when the setting is IPV in all other respects–a dynamic mechanism could have additional bite

over its static counterparts

Birkbeck Institutional Research Online

A rule for updating ambiguous beliefs,” Theory and Decision,

Allais Paradox Bidders in First-Price Auctions, Dutch Auctions and their Variants,” Working Paper,

Ambiguity Aversion and

Ambiguity Aversion and the Absence of Wage Indexation,”

An axiomatic approach to ε-contamination,”

Ascending bid auctions with behaviorally consistent bidders,”

Auctions and bargaining with a set of priors,”

Correlated information and mechanism design,”

Dynamic decision making with belief functions,”

Dynamic Variational Preferences,”

Equilibrium without

Full extraction of the surplus in Bayesian and dominant strategy auctions,”

Knightian uncertainty and the voting paradox,”

Maxmin expected utility with non-unique prior,”

On the equivalence between descending bid auctions and first price sealed bid auctions,” Theory and Decision,

On the suboptimality of the generalized Bayes Rule and robust Bayesian procedures from the decision theoretic point of view: A cautionary note on updating imprecise priors,”

Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent,”

Recent developments in modeling preferences: uncertainty and ambiguity,”

Recursive Multiple Priors,”

Risk, ambiguity, and the Savage axioms,”

Sealed bid auctions with uncertainty averse bidders,”

Search and Knightian uncertainty,”

Selling to Risk Averse Buyers with Unobservable Tastes,”

Subjective Probability and Confidence,” Working Paper,

The use of Choquet capacities in statistics,”

Updating Ambiguous Beliefs,”

Updating Preferences with Multiple Priors,” Mimeo,

Vickrey auctions in the theory of expected utility with rank-dependent probabilities,”

http://eprints.bbk.ac.uk/26896/1/26896.pdf

A dynamic mechanism and surplus extraction under ambiguity

Abstract

Similar works

Full text

Available Versions

Name not available

Crossref

Name not available

Leicester Research Archive

Birkbeck Institutional Research Online

Birkbeck Institutional Research Online