MobLab
Guides
Aa

# Common Value Sealed Bid Auction

## Game Description

In groups of any size, students are bidders in a one-shot sealed bid auction. Each bidder knows only her own signal about the common value and enters a bid simultaneously with other bidders. The bidder with the highest bid wins and pays according to the pricing rule.

This game teaches students why bidders are susceptible to the winner's curse in common value auctions. It can also illustrate how to mitigate overestimation by shading ones' bid, and allow one to explore how different price rules affect bidding behavior.

### Learning Objective 1: The Winner's Curse

Shows why bidders are susceptible to the winner's curse.

### Learning Objective 2: Learning Optimal Bidding Behavior

Illustrate how to mitigate overestimation of a valuation.

## Brief Instructions

Each bidder receives a signal of the value for the unit for sale. The true value of the unit is drawn from a uniform distribution with default endpoints Lowest Common Value = $10 and Highest Common Value =$100. The Signal Noise is the most by which the bidder's value signal can deviate from the true common value. The noise is drawn from a uniform distribution of [-Noise, Noise]. If the Noise puts a player's common value signal beyond the Lowest/Highest Common Value, the common value signal is truncated.

Each bidder draws a new signal each period if Periods > 1.

Bidders submit one bid and the winner of the auction pays according the Price Rule (i.e., First Price or Second Price).

## Results

We first present a table summarizing bidding behavior and outcomes (Figure 1). We display the number of groups, average profit, percentage of bids greater than to common value, percentage of bids greater than the equilibrium bid, and the percentage of auctions won by the highest signal holder.

We next present a series of graphs summarizing participant bids by the common value signal they received (Figure 2). A line showing the equilibrium bid based on common value signal is also included for reference. It is common to see bids above the common value (somtimes considerably above), illustrating the Winner's Curse. With repeated iterations of this game, students learn to reduce this effect.

Finally, we present a graph showing aggregate bids by common value signal across groups, normalized by the common value of the auction item. You can toggle which group's results are shown on the graph. Click on the check box next to a group name in the graph legend to remove that group's bids.

## Robot Play

Our robot (i.e., an automated player) strategy is the following:

#### First Price

The robot will submit a bid equal to their value multiplied by $$\frac{N-1}{N}$$ where $$N$$ is the number of bidders in the auction.

#### Second Price

Robot submits a bid equal to their value. 