A Multiplicative Homomorphic Sealed-Bid Auction-Based on Goldwasser-Micali Encryption

Instead of the costly encryption algorithms traditionally employed in auction schemes, efficient Goldwasser-Micali encryption is used to design a new sealed-bid auction. Multiplicative homomorphism instead of the traditional additive homomorphism is exploited to achieve security and high efficiency in the auction. The new scheme is the currently known most efficient non-interactive sealed-bid auction with bid privacy.

kmth price sealed-bid auctions with general independent values and equilibrium linear mark-ups

A generalised bidding model is developed to calculate a bidder’s expected profit and auctioners expected revenue/payment for both a General Independent Value and Independent Private Value (IPV) kmth price sealed-bid auction (where the mth bidder wins at the kth bid payment) using a linear (affine) mark-up function. The Common Value (CV) assumption, and highbid and lowbid symmetric and asymmetric First Price Auctions and Second Price Auctions are included as special cases. The optimal n bidder symmetric analytical results are then provided for the uniform IPV and CV models in equilibrium. Final comments concern implications, the assumptions involved and prospects for further research.

Market clearing sealed-bid auctions for non-identical objects with single-unit demands

We consider a version of the cooperative buyer-seller market game of Shapley and Shubik (1972). For this market we propose a c1ass of sealed- bid auctions where objects are sold simultaneously at a market c1earing price rule. We ana1yze the strategic games induced by these mechanisms under the complete information approach. We show that these noncooperative games can be regarded as a competitive process for achieving a cooperative outcome: every Nash equilibrium payoff is a core outcome of the cooperative market game. Precise answers can be given to the strategic questions raised.

Nonparametric Identication and Structural Estimation of Auction Models

Thesis (Ph.D.)--University of Washington, 2016-06

Strategic Information Acquisition: Applications to Herding and Auctions

The information that the economic agents have and regard relevant to their decision making is often assumed to be exogenous in economics. It is assumed that the agents either poses or can observe the payoff relevant information without having to exert any effort to acquire it. In this thesis we relax the assumption of ex-ante fixed information structure and study what happens to the equilibrium behavior when the agents must also decide what information to acquire and when to acquire it. This thesis addresses this question in the two essays on herding and two essays on auction theory. In the first two essays, that are joint work with Klaus Kultti, we study herding models where it is costly to acquire information on the actions that the preceding agents have taken. In our model the agents have to decide both the action that they take and additionally the information that they want to acquire by observing their predecessors. We characterize the equilibrium behavior when the decision to observe preceding agents' actions is endogenous and show how the equilibrium outcome may differ from the standard model, where all preceding agents actions are assumed to be observable. In the latter part of this thesis we study two dynamic auctions: the English and the Dutch auction. We consider a situation where bidder(s) are uninformed about their valuations for the object that is put up for sale and they may acquire this information for a small cost at any point during the auction. We study the case of independent private valuations. In the third essay of the thesis we characterize the equilibrium behavior in an English auction when there are informed and uninformed bidders. We show that the informed bidder may jump bid and signal to the uninformed that he has a high valuation, thus deterring the uninformed from acquiring information and staying in the auction. The uninformed optimally acquires information once the price has passed a particular threshold and the informed has not signalled that his valuation is high. In addition, we provide an example of an information structure where the informed bidder initially waits and then makes multiple jumps. In the fourth essay of this thesis we study the Dutch auction. We consider two cases where all bidders are all initially uninformed. In the first case the information acquisition cost is the same across all bidders and in the second also the cost of information acquisition is independently distributed and private information to the bidders. We characterize a mixed strategy equilibrium in the first and a pure strategy equilibrium in the second case. In addition we provide a conjecture of an equilibrium in an asymmetric situation where there is one informed and one uninformed bidder. We compare the revenues that the first price auction and the Dutch auction generate and we find that under some circumstances the Dutch auction outperforms the first price sealed bid auction. The usual first price sealed bid auction and the Dutch auction are strategically equivalent. However, this equivalence breaks down in case information is acquired during the auction.

The strategic behavior of rational novices

There is a growing amount of experimental evidence that suggests people often deviate from the predictions of game theory. Some scholars attempt to explain the observations by introducing errors into behavioral models. However, most of these modifications are situation dependent and do not generalize. A new theory, called the rational novice model, is introduced as an attempt to provide a general theory that takes account of erroneous behavior. The rational novice model is based on two central principals. The first is that people systematically make inaccurate guesses when they are evaluating their options in a game-like situation. The second is that people treat their decisions similar to a portfolio problem. As a result, non optimal actions in a game theoretic sense may be included in the rational novice strategy profile with positive weights.

The rational novice model can be divided into two parts: the behavioral model and the equilibrium concept. In a theoretical chapter, the mathematics of the behavioral model and the equilibrium concept are introduced. The existence of the equilibrium is established. In addition, the Nash equilibrium is shown to be a special case of the rational novice equilibrium. In another chapter, the rational novice model is applied to a voluntary contribution game. Numerical methods were used to obtain the solution. The model is estimated with data obtained from the Palfrey and Prisbrey experimental study of the voluntary contribution game. It is found that the rational novice model explains the data better than the Nash model. Although a formal statistical test was not used, pseudo R^2 analysis indicates that the rational novice model is better than a Probit model similar to the one used in the Palfrey and Prisbrey study.

The rational novice model is also applied to a first price sealed bid auction. Again, computing techniques were used to obtain a numerical solution. The data obtained from the Chen and Plott study were used to estimate the model. The rational novice model outperforms the CRRAM, the primary Nash model studied in the Chen and Plott study. However, the rational novice model is not the best amongst all models. A sophisticated rule-of-thumb, called the SOPAM, offers the best explanation of the data.

Hybrid Auctions II: Experimental Evidence

In this paper we report the results of an experiment designed to examine the properties of a hybrid auction - a Dutch-Vickrey auction, that combines a sealed bid …rst-price auction with a sealed bid second-price auction. This auction mechanism shares some important features with that used in the sale of the companies constituted through the partial division of the Telebras System - the government-owned Telecom holding in Brazil. We designed an experiment where individuals participate in a sequence of independent …rst-price auctions followed by a sequence of hybrid auctions. Several conclusions emerged from this experimental study. First, ex-post e¢ciency was achieved overwhelmingly by the hybrid auctions. Secondly, although overbidding (with respect to the risk-neutral Bayesian Nash equilibrium) was a regular feature of participants’ bidding behavior in the …rst-price auctions — as it is commonly reported in most experimental studies of …rst-price auctions, it was less frequent in the hybrid auctions. By calibrating the results to allow for risk-averse behavior we were able to account for a signi…cant part of the overbidding. Finally, we compared the revenue generated by the hybrid auction with that generated by a standard …rst-price sealed bid auction and the results were ambiguous.

Uma análise dos leilões de partilha de produção do pré-sal através de simulação computacional

O presente trabalho consiste na aplicação da simulação computacional como método de aprofundamento do estudo de mecanismos de leilões aplicados na alocação do direito de exploração das reservas de petróleo da camada do pré-sal. A camada do pré-sal está localizada na costa brasileira e apresenta um grande potencial em termos de reserva de óleo e gás. A função lance aplicada para os participantes criados computacionalmente foi estimada com base em dados experimentais e segue uma função exponencial. A simulação possibilita reproduzir o modelo de leilão considerando todas as características e parâmetros dos experimentos sem incorrer no custo da realização de novas sessões de leilão com participantes reais. Os leilões estudados foram o leilão de valores privados de 1° preço e o leilão de valores privados de 2° preço. Através dos resultados obtidos identificou-se que o leilão de valores privados de 1° preço é menos arriscado que o leilão de valores privados de 2° preço; no leilão com simetria, o Princípio de Equivalência de Receita é válido; a eficiência observada é menor em leilões assimétricos; o leilão de 2° preço comparado com o de 1° preço apresenta um tradeoff entre a eficiência e a receita do governo; e que considerando o aprendizado dos participantes, não se observam alterações significativas nas estatísticas analisadas à medida que os participantes se tornam mais experientes.

An Experimental Study of Complex-Offer Auctions: Payment Cost Minimization vs. Offer Cost Minimization

A Payment Cost Minimization (PCM) auction has been proposed as an alternative to the Offer Cost Minimization (OCM) auction to be used in wholesale electric power markets with the intention to lower the procurement cost of electricity. Efficiency concerns about this proposal have relied on the assumption of true production cost revelation. Using an experimental approach, I compare the two auctions, strictly controlling for the level of unilateral market power. A specific feature of these complex-offer auctions is that the sellers submit not only the quantities and the minimum prices at which they are willing to sell, but also the start-up fees that are designed to reimburse the fixed start-up costs of the generation plants. I find that both auctions result in start-up fees that are significantly higher than the start-up costs. Overall, the two auctions perform similarly in terms of procurement cost and efficiency. Surprisingly, I do not find a substantial difference between less market power and more market power designs. Both designs result in similar inefficiencies and equally higher procurement costs over the competitive prediction. The PCM auction tends to have lower price volatility than the OCM auction when the market power is minimal but this property vanishes in the designs with market power. These findings lead me to conclude that both the PCM and the OCM auctions do not belong to the class of truth revealing mechanisms and do not easily elicit competitive behavior.

Simple-Offer vs. Complex-Offer Auctions in Deregulated Electricity Markets

In my recent experimental research of wholesale electricity auctions, I discovered that the complex structure of the offers leaves a lot of room for strategic behavior, which consequently leads to anti- competitive and inefficient outcomes in the market. A specific feature of these complex-offer auctions is that the sellers submit not only the quantities and the minimum prices at which they are willing to sell, but also the start-up fees that are designed to reimburse the fixed start-up costs of the generation plants. In this paper, using the experimental method I compare the performance of two complex-offer auctions (COAs) against the performance of a simple-offer auction (SOA), in which the sellers have to recover all their generation costs --- fixed and variable ---through a uniform market-clearing price. I find that the SOA significantly reduces consumer prices and lowers price volatility. It mitigates anti-competitive effects that are present in the COAs and achieves allocative efficiency more quickly.