Students are immersed in sealed bid auctions as they compete to maximize their surplus.
Developed with Wharton’s Patrick T. Harper Professor of Business Economics and Public Policy, Joseph Harrington, Sealed Bid Auctions is a simple yet powerful teaching game that pits students against one another in differently modeled bidding wars with varying pieces of information.
The first-price sealed bid auction model explores Independent Private Values:
Students are randomly matched with other students in their class to play the role of competing bidders in an auction. Each student privately learns their valuation which is randomly selected from {1,2,…,100}. Students then submit bids. The student submitting the highest bid is declared the winner and receives a payoff equal to the student’s valuation minus the student’s bid.
Another sealed-bid auction model explores Common Value:
Students are randomly matched with other students in their class to compete for an object of unknown value V which has been randomly selected from {10,11,…,90}. Students do not know V but each receives a private signal which is randomly selected from {V-10,V-9,…,V+10}. Students then submit their bids. The student submitting the highest bid is declared the winner and receives a payoff equal to the true value minus the student’s bid.