Cursed Equilibrium Refinements in Sequential Auction Games

Open Access
Author:
Tatko, Ryan W
Area of Honors:
Economics
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • David Shapiro, Honors Advisor
  • Vijay Krishna, Thesis Supervisor
Keywords:
  • auctions
  • game theory
  • economics
  • Nash equilibrium
Abstract:
In this thesis, we apply the concept of a cursed equilibrium to a sequential auction environment. In a cursed equilibrium, players fail to take into consideration the relationship between their opponents' strategies and types with probability X. In auctions, bidders who exhibit this behavior are said to suffer from the winner's curse: the price they pay upon winning the auction exceeds the true value of the object. As an extension of Eyster and Rabin's original paper, we derive symmetric equilibria strategies for a two-round sequential auction as well as the corresponding price series for any fixed level of cursedness. In addition, we posit a plausible connection between the winner's curse and the downward price anomaly in sequential common-value auctions.