Optimal Bidding Strategies Essay Example | Topics and Well Written Essays - 1500 words

Optimal Bidding Strategies - Essay ExampleGame theoretical issues in instruction often form the basis of well defined mathematical models used by urgeders in arriving at optimal bidding strategies. Bidders often take over varying preferences and capabilities, and thus, one bidders strategy may directly impact on another bidders strategy, although on the basis of private and independent valuations to the bid. The boilers suit market efficiency may also be influential to the impact and effectiveness of optimization strategies that bidders put in place (Eckbo, 2010, P.55-78). First Price loaded Bid Sealed bids atomic number 18 often rendered as the sellers monopoly since information regarding the winning bids and their valuations are open to the seller and hidden to buyers as remote to open forms where information is available to all participants. First price sealed bid sell is basically a bid where each participating bidder submits a sealed bid hidden from other bidding partic ipants to the auctioneer. The first price sealed bid is rather referred as a one shot gimpy since bidders winning chances relies on their one time decision and valuation after which the bid manager opens the bids and determines the highest bid as the winning bid. Bidders with the winning market clarification bids must then pay the amounts they set forward as a one shot bid (McGuigan, Moyer, & Harris, 2011, p.594). The first-price sealed bid auction optimal bidding strategy basically lies on submitting bids below ones private valuation to maximize surplus. Maximization of a bidders expected surplus is dictated by lower a bid that increases surplus potential although on the other hand it reduces probability a bid becoming successful. More so, the probability of a bid becoming successful increases with valuation increase but decreases with an increase in the number of bidders with regards to their strategies and valuations. The basic optimal strategy for the first-price sealed bid au ction is for a bidder to bid below the real valuation in order to make a profit. In case the bidder bids above or equal to the bid valuation, the payment may exceed or equal the bid valuation in case of a win bid, and thus, no optimization is achieved (Sheble. 1999. P.44-151). There are no interactions among bidders in the first price sealed bid auction, since bids are only submitted by participants once. Participants trade between winning more frequently and maximise profits, and low bidding with regards to the Nash equilibrium. Optimal bidding strategies under independent and uniformly distributed private valuations among bidders calls for a slight overestimation strategy of the winning bid, considering the fact a bidder has the chance of winning when he or she has the highest estimate irrespective of correct bidding based on averages (Kagel & Levin, 2002, p.2). Assumption that all participating bidders are risk-neutral renders the optimal bidding strategies in the first price se aled bid auction as a bidder that emerges the highest bidder among all bidders bidding the highest expected value (Sheble, 1999, p.70). The optimal deflexion between the value that a bidder opts to bid below private valuation and the actual value basically depends on beliefs of the bidder with regards to rival bidder valuation and strategies. This strikes situational