[[Agent]]
There are 4 main types of auctions. These are:
- English auction participants been openly against one another and the highest bidder wins. Used in things like art acutions at Christies. The dominant strategy is to bid in small increments above the previous high bid until a personal threshold.
- Dutch auction: The bidding starts at an unreasonable estimate and the price is lowered until a bidder is prepared to buy at the current price. Used by the US Treasury to sell securities.
- Sealed bid auction in which bidders place their bid in a sealed envelope the envelopes are opened and the individual with the highest bid wins. Real estate transactions.
- Second price sealed bid auction, also known as the Vickrey auction. a bidder who offers the highest price gets a good in the second highest price. It encourages bidders to bid high on articles they really want. Its been used by stamp collectors for decades.
How do agents and their environments impact the considerations of auction design? We need to consider agreement, negotation and communication. We have seen in [[Game Theory]] and the [[Prisioners Dilema]] that rational behaviour predicts agents will act exclusively in their own self interest. In oder for cooperation to happen, the auction system must include mechanisms that promote mutally benificial self interest.
Who are the principle actors in this situation? There is usually one seller and multiple bidders. The allowed actions for the seller are to open and close the acution, and the alllowed actions for the bidders are to place bids. A bidder may or may not have access to information on the other bidders. The goal of the seller is to maximise the price they receive for a good, and the goal for the bidder is to purchase at the lowest possible price.
In order to facillate these conflicting goals then, mechanisms must be implemented that incentivise stability, simplicity, individual ratonality, Pareto efficieny and guaranteed success.