The Optimal Strategy for a Risk-Neutral Bidder in a Second-Price

question 115

Multiple Choice

The optimal strategy for a risk-neutral bidder in a second-price, sealed-bid auction with independent private values is to bid:

• A) slightly less than his or her valuation.
• B) slightly higher than his or her valuation.
• C) his or her true valuation.
• D) None of the statements is correct.

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Definitions:

Normal Approximation

A method that uses the normal distribution to approximate the distribution of other statistical measures when the conditions justify its use, particularly when the sample size is large.

Population Proportions

represent the fraction or percentage of individuals in a population exhibiting a certain trait or characteristic.

Binomial Distribution

A probability distribution that describes the number of successes in a fixed number of independent experiments, each with the same probability of success.

Significance Level

The threshold chosen by a researcher or analyst to determine the statistical significance of a result, typically denoted by alpha (α) and representing the probability of a type I error.