IDEAS home Printed from https://ideas.repec.org/a/tpr/jeurec/v7y2009i2-3p377-387.html
   My bibliography  Save this article

Behaviorally Optimal Auction Design: Examples and Observations

Author

Listed:
  • Vincent P. Crawford
  • Tamar Kugler
  • Zvika Neeman
  • Ady Pauzner

Abstract

This paper begins to explore behavioral mechanism design, replacing equilibrium by a model based on "level-k" thinking, which has strong support in experiments. In representative examples, we consider optimal sealed-bid auctions with two symmetric bidders who have independent private values, assuming that the designer knows the distribution of level-k bidders. We show that in a first-price auction, level-k bidding changes the optimal reserve price and often yields expected revenue that exceeds Myerson's (1981) bound; and that an exotic auction that exploits bidders' non-equilibrium beliefs can far exceed the revenue bound. We close with some general observations about level-k auction design. (JEL: C72, C92) (c) 2009 by the European Economic Association.

Suggested Citation

  • Vincent P. Crawford & Tamar Kugler & Zvika Neeman & Ady Pauzner, 2009. "Behaviorally Optimal Auction Design: Examples and Observations," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 377-387, 04-05.
  • Handle: RePEc:tpr:jeurec:v:7:y:2009:i:2-3:p:377-387
    as

    Download full text from publisher

    File URL: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1542-4774/issues
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2013. "Structural Models of Nonequilibrium Strategic Thinking: Theory, Evidence, and Applications," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 5-62, March.
    2. repec:oup:oxford:v:33:y:2017:i:4:p:541-571. is not listed on IDEAS
    3. Scott Duke Kominers & Alexander Teytelboym & Vincent P Crawford, 2017. "An invitation to market design," Oxford Review of Economic Policy, Oxford University Press, vol. 33(4), pages 541-571.
    4. Strzalecki, Tomasz, 2014. "Depth of reasoning and higher order beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 108-122.
    5. Bolton, Gary E. & Ockenfels, Axel, 2012. "Behavioral economic engineering," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 665-676.
    6. Bayer, R.-C. & Renou, Ludovic, 2016. "Logical abilities and behavior in strategic-form games," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 39-59.
    7. Tore Ellingsen & Robert Östling, 2010. "When Does Communication Improve Coordination?," American Economic Review, American Economic Association, vol. 100(4), pages 1695-1724, September.
    8. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
    9. Olga Gorelkina, 2015. "The Expected Externality Mechanism in a Level-k Environment," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2015_03, Max Planck Institute for Research on Collective Goods.
    10. repec:eee:matsoc:v:90:y:2017:i:c:p:191-207 is not listed on IDEAS
    11. Kota Murayama, 2015. "Robust Predictions under Finite Depth of Reasoning," Discussion Paper Series DP2015-28, Research Institute for Economics & Business Administration, Kobe University.
    12. Nagel, Rosemarie & Bühren, Christoph & Frank, Björn, 2017. "Inspired and inspiring: Hervé Moulin and the discovery of the beauty contest game," Mathematical Social Sciences, Elsevier, vol. 90(C), pages 191-207.
    13. Binswanger, Johannes & Prüfer, Jens, 2012. "Democracy, populism, and (un)bounded rationality," European Journal of Political Economy, Elsevier, vol. 28(3), pages 358-372.
    14. Andrew M. Davis & Elena Katok & Anthony M. Kwasnica, 2011. "Do Auctioneers Pick Optimal Reserve Prices?," Management Science, INFORMS, vol. 57(1), pages 177-192, January.
    15. Bartling, Björn & Netzer, Nick, 2016. "An externality-robust auction: Theory and experimental evidence," Games and Economic Behavior, Elsevier, vol. 97(C), pages 186-204.
    16. Kneeland, Terri, 2017. "Mechanism design with level-k types: Theory and an application to bilateral trade," Discussion Papers, Research Unit: Economics of Change SP II 2017-303, Social Science Research Center Berlin (WZB).
    17. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.
    18. Crawford, Vincent P., 2017. "Let׳s talk it over: Coordination via preplay communication with level-k thinking," Research in Economics, Elsevier, vol. 71(1), pages 20-31.
    19. Xiaochuan Huang & Takehito Masuda & Yoshitaka Okano & Tatsuyoshi Saijo, 2014. "Cooperation among behaviorally heterogeneous players in social dilemma with stay or leave decisions," Working Papers SDES-2014-7, Kochi University of Technology, School of Economics and Management, revised Feb 2015.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:jeurec:v:7:y:2009:i:2-3:p:377-387. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites). General contact details of provider: http://www.mitpressjournals.org/jeea .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.