MobLab
Guides
Aa

# All-Pay Sealed Bid Auction

## Game Description

In groups of any size, students participate in an R&D race (all-pay sealed bid auction). Each participant knows only her private value for the project and chooses an amount to invest once, simultaneously with other students. The participant with the highest investment wins the race and gets her value, however all participants have to pay for their investments.

This game teaches students about all-pay auctions and how they can be thought of as representing Research and Development (R&D) races. It can be used to explore other scenarios where all-pay auctions apply, such as raising money for a charity event.

### Learning Objective 1: Sealed Bid Auctions

Players learn bidding strategies in an all-pay, sealed bid auction.

### Learning Objective 2: Contextual Exploration

Allows exploration of other scenarios where all-pay auctions might be useful.

## Brief Instructions

Each bidder receives a value for the unit for sale. His or her true value for the unit is drawn from a uniform distribution with default endpoints Lowest Bidder Value = $10 and Highest Bidder Value =$100. Each bidder draws a new value each period if Periods > 1.

Bidders submit one bid and regardless of if they win the unit or not, are required to pay their bid.

## Results

Results are presented for each period played. If you set Periods > 1, use the Go To: menu to switch to a different period.

We first present a table (Figure 1), which summarizes auction behavior for each group. The columns display optimal surplus, surplus, market efficiency, and revenue. To change which group's results are displayed, use the radio buttons to the left of each group number to choose a different group.

For each group, we present a table that shows bidding behavior for the selected period (Figure 2). Bids, and their relation to a participant's valuations, are shown on the graph for the selected group. A best fit line is also displayed for reference. In addition, we include points for bids and valuations of other groups on this graph. This makes it easy to compare a specific group's bidding behavior to the overall session. Each one of these elements on the graph can be hidden by clicking on the check box in the legend.

## 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.