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Bid distribution derived from consistent mixed strategy in lowest unique bid auction

Author

Listed:
  • Yinan Zhao

    (School of Systems Science, Beijing Normal University, Beijing 100875, P. R. China)

  • Qinghua Chen

    (School of Systems Science, Beijing Normal University, Beijing 100875, P. R. China;
    School of Electrical, Computer and Energy Engineering, Arizona State University, Tempe, AZ 85287, USA)

  • Yougui Wang

    (School of Systems Science, Beijing Normal University, Beijing 100875, P. R. China)

Abstract

The Lowest Unique Bid Auction (LUBA) booms recently through the Internet. A typical distribution pattern of bid price in this reverse auction has been found and needs to be interpreted. The distribution curve is a decreasing one whose slope has a close relationship with the number of agents participating in the auction. To explain this stylized fact, we develop a model assuming that agents prefer to bid on the price at which the probability of winning is higher. The bid distributions of actual auctions with the number of agents less than 200 can be fitted very well using the parameters for the value of items and the number of bids. When this number becomes larger, however, a deviation occurs between prediction and empirical data, which can be adjusted by introducing cognitive illusion of the bid number.

Suggested Citation

  • Yinan Zhao & Qinghua Chen & Yougui Wang, 2014. "Bid distribution derived from consistent mixed strategy in lowest unique bid auction," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 25(05), pages 1-10.
    • Handle: RePEc:wsi:ijmpcx:v:25:y:2014:i:05:n:s0129183114400026
    DOI: 10.1142/S0129183114400026
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    References listed on IDEAS

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    1. Ocde & Aen, 2012. "Documents et textes juridiques," Bulletin de droit nucléaire, Éditions OCDE, vol. 2012(1), pages 161-251.
    2. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, October.
    3. Ocde & Aen, 2012. "Documents et textes juridiques," Bulletin de droit nucléaire, Éditions OCDE, vol. 2011(2), pages 139-212.
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    Cited by:

    1. Rui Hu & Jinzhong Guo & Qinghua Chen & Tao Zheng, 2017. "The Psychological Force Model for Lowest Unique Bid Auction," Computational Economics, Springer;Society for Computational Economics, vol. 50(4), pages 655-667, December.

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