A dynamic mechanism and surplus extraction under ambiguitySubir Bose () and Arup Daripa () Journal of Economic Theory, 2009, vol. 144, issue 5, pages 2084-2114 Abstract: We study the question of auction design in an IPV setting characterized by ambiguity. We assume that the preferences of agents exhibit ambiguity aversion; in particular, they are represented by the epsilon-contamination model. We show that a simple variation of a discrete Dutch auction can extract almost all surplus. This contrasts with optimal auctions under IPV without ambiguity as well as with optimal static auctions with ambiguity--in all of these, types other than the lowest participating type obtain a positive surplus. An important point of departure is that the modified Dutch mechanism is dynamic rather than static, establishing that under ambiguity aversion--even when the setting is IPV in all other respects--a dynamic mechanism can have additional bite over its static counterparts. A further general insight is that the standard revelation principle does not automatically extend to environments not characterized by subjective expected utility. Keywords: Ambiguity; aversion; Epsilon; contamination; Modified; Dutch; auction; Dynamic; mechanism; Surplus; extraction; Revelation; principle (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:eee:jetheo:v:144:y:2009:i:5:p:2084-2114 Access Statistics for this article Journal of Economic Theory is edited by A. Lizzeri and K. Shell More articles in Journal of Economic Theory from Elsevier |
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