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Game Theory and Real Life

https://www.stat.berkeley.edu/~aldous/Research/Ugrad/selene_xu.pdf

This articles explores second price auctions and how people should act in different scenarios. At first, the article looks at what theoretically should happen in second price auctions. It says that with second priced sealed auctions, the best strategy is to bid one’s own value. After this, the article explores concrete examples to see if this idea holds up in practice. The article considers a second price auction where people are bidding on eBay for Nike dunks shoes. When we actually start to analyze the data from this experiment, it’s clear that people don’t always bid optimally. In the experiment, bidders overbid their value. The article concludes that the assumption that bidders know the market value of the items might not hold, buyers might get “winning mentality” and overvalue actually winning something and eBay isn’t the best place for a second price sealed auction (bidders can bid multiple times).

This article is very interesting and relates to class because we also looked at second price auctions and how bidders should bid in this scenario. In class we determined that if someone overbids and they win then their payoff is negative and if they underbid their value then they lose out on auctions they would’ve otherwise won. Although it’s clear that in a regular second price auction bidders should bid their value-slightly different scenarios with outside factors might cause bidders to act differently. The example in this article is important because it puts theory into practice and causes us to think about other factors impacting second price auctions.

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