The purpose of this assignment is to learn about private-value auctions in both theory and practice. You have already participated in a classroom experiment dealing with auctions. In order to complete this assignment you will next need to; read a chapter in the book to learn about the theory of auctions, then you will do some minor analysis of the data from the experiment to compare actual play to predicted play, finally you will need to read an academic paper in order to learn a little about why we see a difference between actual and theoretical bids.
Read the chapter of the book that is posted along with this assignment. This will teach you about the equilibrium in this game and how to find the equilibrium based on the number of people bidding for the object. Note that you do not need to pay attention to the mentions of Second-Price auctions; we only did First-Price auctions. You will need to find the equilibrium bid for each treatment.
Use the data provided on Canvas to show how the average bid compares to the predicted bid. As a hint, you can try to recreate the following graph for Section C
You should make a graph for the combined sections (the sections are in different sheets shown at the bottom of the excel spreadsheet). You should also make a graph related to the profit earned vs the expected profit earned. I will not give you an example graph to go based on, try to present the data in a simple-to-comprehend way similar to the graph shown above.
Finish reading the chapter in the book that explains why the actual bids in this game are frequently different from the predicted bids. What is the reasoning for the difference in actual and predicted?
Now write a paper that summarizes the experiment that was run, and the equilibrium bid and expected profit earned in each treatment. Then display the graphs that you made in Step 2 above. Explain the differences between the theoretical expectations and the actual behavior. Finally, use the knowledge you gained by reading the chapter in step 3 to explain why the differences between theory and behavior exist.
- Title page that includes each person’s name. Groups may be 4 persons or smaller.
- 3-5 pages long (including graphs, not including the title page)
- Margins of 1” on each side
- Calibri or Times New Roman font
- Size 12 font
A few hints:
- Make sure that you clearly label EVERYTHING in the graph
- The 3 C’s of writing
- Grammar exists not as a method of torture (though it may seem like it). The purpose of grammar is to ensure that the reader easily understands the point you are attempting to make. If I am unable to understand your point, the fault does not lie with myself.
- Do not blather on with unnecessary filler. I imagine that (based on my own personal experience), many of you were taught to write with a flowery exposition that carries on by your high school and perhaps even college English/Writing teachers. I do not want to see any of that. GET TO THE POINT! I am giving you three pages to make your point, that isn’t a lot of space, so make it!
- While you do need to be concise, you must also make sure that you are telling the full story. Reread the paper to make sure that nothing is missing.
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