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Decision-Analytic Approach to Knockout Auctions

Author

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  • Yigal Gerchak

    (Department of Industrial Engineering, Tel Aviv University, Tel-Aviv, Israel 69978)

Abstract

Society seems to have developed several ingenious schemes for allocating jointly owned indivisible items. One such scheme, occasionally used to divide estates among heirs, is a knockout auction (Engelbrecht-Wiggans 1994). In a knockout auction, the joint owners bid for the item; the highest bidder obtains it and pays the others their share of the winning bid. This paper follows the advice of Raiffa and Rothkopf to view auctions from a decision-analytic point of view, and analyzes the optimal bid of an expected-utility maximizing participant in a knockout auction who is uncertain about the bids of others, and contrasts it to the properties of optimal declarations in buy-sell agreements, derived in Gerchak and Fuller (1992).

Suggested Citation

  • Yigal Gerchak, 2008. "Decision-Analytic Approach to Knockout Auctions," Decision Analysis, INFORMS, vol. 5(1), pages 19-21, March.
    • Handle: RePEc:inm:ordeca:v:5:y:2008:i:1:p:19-21
    DOI: 10.1287/deca.1080.0107
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    References listed on IDEAS

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    1. James K. Sebenius, 1992. "Negotiation Analysis: A Characterization and Review," Management Science, INFORMS, vol. 38(1), pages 18-38, January.
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    3. Preston McAfee, R., 1992. "Amicable divorce: Dissolving a partnership with simple mechanisms," Journal of Economic Theory, Elsevier, vol. 56(2), pages 266-293, April.
    4. Michael H. Rothkopf, 2007. "Decision Analysis: The Right Tool for Auctions," Decision Analysis, INFORMS, vol. 4(3), pages 167-172, September.
    5. John Winsor Pratt & Richard Jay Zeckhauser, 1990. "The Fair and Efficient Division of the Winsor Family Silver," Management Science, INFORMS, vol. 36(11), pages 1293-1301, November.
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    Cited by:

    1. L. Robin Keller, 2008. "From the Editor..," Decision Analysis, INFORMS, vol. 5(1), pages 1-4, March.
    2. L. Robin Keller & Kelly M. Kophazi, 2009. "From the Editors..," Decision Analysis, INFORMS, vol. 6(2), pages 53-56, June.
    3. Robert F. Bordley & Elena Katok & L. Robin Keller, 2010. "Honoring Michael H. Rothkopf's Legacy of Rigor and Relevance in Auction Theory: From the Editors," Decision Analysis, INFORMS, vol. 7(1), pages 1-4, March.

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