Adversarial risk analysis for auctions using non-strategic play and level-k thinking: A general case of n bidders with regret

Muhammad Ejaz, Chaitanya Joshi and Stephen Joe

Communications in Statistics - Theory and Methods, 2023, vol. 52, issue 20, 7146-7164

Abstract: First-price sealed-bid auctions have been modeled using a utility function that takes into account bidders’ regret in case of winning or losing the auctioned item. However, that modeling does not consider bidders’ wealth which is an important determinant of bidders’ behavior in these auctions. In this paper, we apply an adversarial risk analysis approach for these auctions and find solutions using non-strategic play and level-k thinking solution concepts assuming n bidders. We define new regret parameters and a modified utility function to incorporate the effect of bidders’ wealth on their bidding behavior. In our modeling, we assume that the auctioned item is a normal item and has a reserve price. We give numerical examples to illustrate our methodology for each solution concept.

Date: 2023
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DOI: 10.1080/03610926.2022.2042023

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