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Smarter than Others? Conjectures in Lowest Unique Bid Auctions

Author

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  • Cancan Zhou
  • Hongguang Dong
  • Rui Hu
  • Qinghua Chen

Abstract

Research concerning various types of auctions, such as English auctions, Dutch auctions, highest-price sealed-bid auctions, and second-price sealed-bid auctions, is always a topic of considerable interest in interdisciplinary fields. The type of auction, known as a lowest unique bid auction (LUBA), has also attracted significant attention. Various models have been proposed, but they often fail to explain satisfactorily the real bid-distribution characteristics. This paper discusses LUBA bid-distribution characteristics, including the inverted-J shape and the exponential decrease in the upper region. The authors note that this type of distribution, which initially increases and later decreases, cannot be derived from the symmetric Nash equilibrium framework based on perfect information that has previously been used. A novel optimization model based on non-perfect information is presented. The kernel of this model is the premise that agents make decisions to achieve maximum profit based on imaginary information or assumptions regarding the behavior of others.

Suggested Citation

  • Cancan Zhou & Hongguang Dong & Rui Hu & Qinghua Chen, 2015. "Smarter than Others? Conjectures in Lowest Unique Bid Auctions," PLOS ONE, Public Library of Science, vol. 10(4), pages 1-13, April.
    • Handle: RePEc:plo:pone00:0122923
    DOI: 10.1371/journal.pone.0122923
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    References listed on IDEAS

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    4. Filippo Radicchi & Andrea Baronchelli & Luís A N Amaral, 2012. "Rationality, Irrationality and Escalating Behavior in Lowest Unique Bid Auctions," PLOS ONE, Public Library of Science, vol. 7(1), pages 1-8, January.
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    Cited by:

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    3. Nadir Altinok & Abdurrahman Aydemir, 2015. "The Unfolding of Gender Gap in Education," Working Papers 934, Economic Research Forum, revised Aug 2015.

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