Behaviorally Optimal Auction Design: Examples and Observations

Vincent Crawford, Tamar Kugler, Zvika Neeman () and Ady Pauzner

Journal of the European Economic Association, 2009, vol. 7, issue 2-3, 377-387

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.

JEL-codes: C72 C92 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (40)

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