Theodore L.
Turocy
Department of Economics
Texas A&M University
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The robustness of the Bayes-Nash equilibrium prediction for seller
revenue in auctions is investigated. In a framework of interdependent
valuations generated from independent signals, seller expected revenue
may fall well below the equilibrium prediction, even though the
individual payoff consequences of suboptimal bidding may be small for
each individual bidder. This possibility would be relevant to a seller
who models strategic uncertainty as ambiguity, and who is
ambiguity-averse in the sense of Gilboa and Schmeidler. It is shown
that the second-price auction is more exposed than the first-price
auction to lost revenue from the introduction of bidder behavior with
small payoff errors.
Current version dated October 10, 2006. Available in: [pdf]. This paper is forthcoming
in Games and Economic Behavior.