Optimal Auction Design with Common Values: An Informational Robust Approach

University Of Chicago, Chicago IL

Investigators

Abstract

This award funds research to develop new methods for identifying the best ways to buy and sell goods via auctions. Auction methods are widely used by governments and private firms. For example, web-based electronic reverse auctions are increasing used as a procurement method by Federal agencies. At the same time, agencies such as the Federal Communications Commission, the Department of the Interior, and the Department of the Treasury use auctions to sell everything from Treasury bills to oil and gas leases. This project will use game theory to find auction rules that will perform well in a wide range of situations. It seeks to develop rules that will work well when bidders place the same value on the auctioned good but have different information about the exact value. The project advances the basic science of auction theory, and will lead to better procedures for public procurement and better methods for generating public funds from the sale of natural resources such as timber, oil, and gas. The methodological component of the project could lead to the development of more efficient online trading platforms. The project therefore benefits the U.S. economy. The aim of the project is to characterize revenue maximizing auctions when bidders have a common valuation for the good being sold. This research will develop new theories of optimal robust auctions that provide favorable revenue guarantees across different models of bidder beliefs and across different kinds of equilibrium behavior. Existing theories identify optimal auction designs that are highly sensitive to modeling assumptions. This project will develop auction designs that are less sensitive to model misspecification. Besides advancing the theory of optimal auctions, the project will also develop and demonstrate methods for designing mechanisms in models with rich information or potentially complex equilibrium strategies. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.