Dynamic Consistency, Revelations in Auctions and the Structure of Preferences

Edi Karni and Zvi Safra

The Review of Economic Studies, 1989, vol. 56, issue 3, 421-433

Abstract: Analyzing the optimal bidding behaviour in ascending-bid auctions and second-price sealed-bid auctions with independent private values, we show that expected utility maximizing behaviour is equivalent to: (a) dynamically consistent bidding in ascending-bid auctions; (b) the equivalence of the optimal bids in ascending-bid auctions and in second-price sealed-bid auctions; (c) bidding the value of the object in second-price sealed-bid auctions. In addition, the optimal bid in ascending-bid auctions equals the value of the object if and only if the bidder's preferences on lotteries are both quasi-concave and quasi-convex.

Date: 1989
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