0 vues

Transféré par Jessie Sethdavid

Auction material

- May Artcoz Newsletter 2017
- Uncertainty
- SaintGobainChakanPune_071114
- #2
- Weekly Reminder March 17, 2014
- Black Art of Winning Ma Auctions
- 09948070.pdf
- Auction Theory
- Utility Theory & Prospect Theory
- Rule: Acquisition regulations: Head of contracting activity redefined
- q4 answer
- Online Auction Synopsis
- 1-s2.0-S0022053104001991-main
- 1 - Complaint (1)
- L10_L11_ForecastExperimentDebrief050415
- M362K Spring 2017 Course Calendar
- Very Important
- Lesson 2
- PubMatic RTB White Paper
- GMSS

Vous êtes sur la page 1sur 40

© 2017 by McGraw-Hill Education. All Rights Reserved. Authorized only for instructor use in the classroom. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Learning Objectives

1. Identify strategies to manage risk and uncertainty,

including diversification and optimal search strategies.

2. Calculate the profit-maximizing output and price in an

environment of uncertainty.

3. Explain why asymmetric information about “hidden

actions” or “hidden characteristics” can lead to moral

hazard and adverse selection, and identify strategies for

mitigating these potential problems.

4. Explain how differing auction rules and information

structures impact the incentives in auctions, and

determine the optimal bidding strategies in a variety of

auctions with independent or correlated values.

The Mean and the Variance

Measuring Uncertain Outcomes

• A variable that measures the outcome of an

uncertain event is called a random variable.

– Probabilities can be attached to different values of a

random variable that denote the chance that a value

occurs.

• Information about uncertain outcomes can be

summarized by the mean (or, expected value)

and variance of a random variable.

The Mean and the Variance

• The mean of a random variable is the sum of the

probabilities that different outcomes will occur

multiplied by the resulting payoffs.

• If 𝑥1 , 𝑥2 , … , 𝑥𝑛 denote the possible outcomes of

the random variable and 𝑞1 , 𝑞2 , … , 𝑞𝑛 the

corresponding probabilities of the outcomes, then

the mean of 𝑥 is:

𝐸 𝑥 = 𝑞1 𝑥1 + 𝑞2 𝑥2 + … + 𝑞𝑛 𝑥𝑛

, where 𝑞1 + 𝑞2 , + ⋯ + 𝑞𝑛 = 1.

• The mean does not provide information about the

risk associated with the random variable.

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-4

The Mean and the Variance

Measuring Uncertain Outcomes:

Variance and Standard Deviation

• The variance of a random variable is the sum of the

probabilities that different outcomes will occur multiplied

by the squared deviation from the mean of the resulting

payoffs.

• If 𝑥1 , 𝑥2 , … , 𝑥𝑛 denote the possible outcomes of the

random variable, their corresponding probabilities are

𝑞1 , 𝑞2 , … , 𝑞𝑛 , and the expected value of 𝑥 is 𝐸 𝑥 , then

the variance of 𝑥 is:

𝜎2

= 𝑞1 𝑥1 − 𝐸 𝑥 2 + 𝑞2 𝑥2 − 𝐸 𝑥 2 + …

+ 𝑞𝑛 𝑥𝑛 − 𝐸 𝑥 2

• The variance is a common measure of risk.

• The standard deviation is the positive square root of the

variance: 𝜎 = 𝜎 2 . © 2017 by McGraw-Hill Education. All Rights Reserved.

12-5

Uncertainty and Consumer Behavior

Risk Aversion

• Attitudes toward risk differ among consumers.

– A risk-averse consumer prefers a sure amount of $𝑀

to a risky prospect with an expected value of $𝑀.

– A risk-loving consumer prefers a risky prospect with

an expected value of $𝑀 to a sure amount of $𝑀.

– A risk-neutral consumer is indifferent between a

risky prospect with an expected value of $𝑀 and a

sure amount of $𝑀.

Uncertainty and Consumer Behavior

Managerial Decisions with

Risk-Averse Consumers: Product Quality

• Risk analysis can used to examine situations where

consumers are uncertain about product quality.

• Consider a consumer who regularly uses Brand X. If a

new product enters the market, Brand Y, under what

conditions will the consumer be willing to try the new

product?

– Issues to overcome and consider:

• Relative certainty about Brand X.

• At equal prices among other things, a risk averse consumer will

continue to purchase Brand X, since a risk averse consumer prefers

the sure thing (Brand X) to a risky prospect (Brand Y).

– Two tactics can be employed to induce a risk averse

consumer to try a new product:

• Lower the price of Brand Y.

• Try to convince consumer the new product’s quality is higher than the

old product. © 2017 by McGraw-Hill Education. All Rights Reserved.

12-7

Managerial Decisions with Risk-

Averse Consumers

• Chain stores: may be in a firm’s best interest to

become part of a chain store

– Standardization, reputation, increased chance of

survival

• Online reviews

• Insurance: the fact that consumers are risk

averse implies they are willing to pay to avoid

risk.

Uncertainty and Consumer Behavior

Consumer Search

• To identify the low-price seller from among

many firms selling an identical product,

consumers sometimes incur a cost, 𝑐, to obtain

each price quote.

• After observing each price quote, a consumer

faces must weigh the expected benefit from

acquiring an additional price quote with the

additional cost.

Uncertainty and Consumer Behavior

Consumer Search

• Suppose that three-quarters of stores in a market

charge $100 and one-quarter charge $40.

– A consumer observing a price of $40 should stop

searching since there is no price below $40.

– What should a risk-neutral consumer do after observing

a price of $100, if search occurs with free recall and

with replacement?

• One-quarter of the time the consumer will save $100 − $40 =

$60.

• Three-quarters of the time the consumer will save nothing.

• The expected benefit from an additional search is: 𝐸𝐵 =

1 3

$100 − $40 + $100 − $100 = $15.

4 4

• A consumer should search for a lower price as long as the

expected benefits for an additional search are greater than the

cost of an additional search.

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-10

Uncertainty and Consumer Behavior

Expected

benefits

and costs 𝐸𝐵

𝐸𝐵 𝑅 = 𝑐

$𝑐 𝑐

Reservation price:

Price at which a consumer

is indifferent between

purchasing at that price and

searching for a lower price.

Uncertainty and Consumer Behavior

• The optimal search rule is such that the

consumer rejects prices above the reservation

price, 𝑅, and accepts prices below the

reservation price. Stated differently, the optimal

search strategy is to search for a better price

when the price charged by a firm is above the

reservation price and stop searching when a

price below the reservation price is found.

Uncertainty and Consumer Behavior

Expected

benefits

and costs 𝐸𝐵

$𝑐 ∗ 𝑐∗

Due to

Increase

in search

costs.

$𝑐 𝑐

𝑅 𝑅∗ Price

Uncertainty and the Firm

Manager’s Risk Attitudes

• While manager must understand the impact of

uncertainty on consumer behavior, uncertainty also

impacts the manager’s input and output decisions.

• Manager’s risk profiles:

– Risk averse: a manager who prefers a risky project with

a lower expected value if the risk is lower than a project

with a higher expected value.

– Risk loving: manager who prefers a risky project with

higher expected value and higher risk to one with lower

expected value and lower risk.

– Risk neutral: manager interested in maximizing

expected profits; the variance of profits does not impact

a risk-neutral manager’s decisions.

Uncertainty and the Firm

Risk Aversion In Action: Problem

• A risk-averse manager is considering two projects. The

first project involves expanding the market for bologna;

the second involves expanding the market for caviar.

There is a 10 percent chance of recession and a 90

percent chance of an economic boom. The following

table summarizes the profits under the different

scenarios. Which project should manager undertake, and

why?

Boom Recession Standard

Project Mean

(90%) (10%) Deviation

Bologna -$10,000 $12,000 -$7,800 $6,600

Caviar 20,000 -8,000 17,200 8,400

Joint 10,000 4,000 9,400 1,800

a

Safe (T-Bill) 3,000 3,000 3,000 0

Uncertainty and the Firm

Boom Recession Standard

Project Mean

(90%) (10%) Deviation

Bologna -$10,000 $12,000 -$7,800 $6,600

Caviar 20,000 -8,000 17,200 8,400

Joint 10,000 4,000 9,400 1,800

Safe (T-Bill) 3,000 3,000 3,000 0

– The joint project is assured of making at least $4,000, which is greater

than $3,000 under the T-Bill scenario.

• Since the expected returns of the bologna project are negative,

neither a risk-neutral nor a risk-averse manager would choose to

undertake this project.

• The manager should adopt either the caviar project or the joint

project. Which project will depend on his or her risk preferences.

Uncertainty and the Firm

Diversification

• Notice from the previous problem that by

investing in multiple projects, the manager may

be able to reduce risk.

• The process of potentially reducing risk by

investing in multiple projects is called

diversification.

• Whether it is optimal to diversify depends on a

manager’s risk preferences and the incentives

provided to the manager to avoid risk.

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-17

Uncertainty and the Firm

Producer Search

• When producers are uncertain about the prices

of inputs, an optimizing firm will use optimal

search strategies.

– These strategies mimic consumer search previously

developed.

Uncertainty and the Firm

• The basic principles of profit maximization can

be modified to deal with uncertainty.

• If demand (hence, revenue) is uncertain and the

manager is risk neutral, then the manager will

want to maximize expected profits by producing

the output where the expected marginal

revenue equals marginal cost:

𝐸 𝑀𝑅 = 𝑀𝐶

Uncertainty and the Firm

In Action: Problem

• Appleway Industries produces apple juice and sells

it in a competitive market. The firm’s manager must

determine how much juice to produce before he

knows what the market (competitive) price will be.

Economists estimate that there is a 30 percent

chance the market price will be $2 per gallon and a

70 percent chance it will be $1 per gallon when the

juice hits the market. If the firm’s cost function is

𝐶 = 200 + 0.0005𝑄2 , how much juice should be

produced to maximize expected profits? What are

the expected profits of Appleway Industries?

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-20

Uncertainty and the Firm

In Action: Answer

• Appleway Industries’ profits are

𝜋 = 𝑝𝑄 − 200 − 0.0005𝑄2

• Since price is uncertain, the firm’s revenues and

profit are uncertain. To maximize expected profits,

the manager equates expected price with marginal

cost.

𝐸 𝑝 = 𝑀𝐶

• The expected price is: 𝐸 𝑝 = 0.3 × $2 + 0.7 ×

$1 = $1.30.

• Therefore, manager should produce output where

$1.30 = 0.001𝑄 ⟹ 𝑄 = 1,300 gallons.

• Expected profits are $645.

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-21

Uncertainty and the Market

Asymmetric Information

• Uncertainty can profoundly impact markets abilities

to efficiently allocate resources.

• Some markets are characterized by individuals who

have better information than others.

– Implication: Those individuals with the least information

may choose not to participate in a market.

• When some people have better information than

others in a market, the information people have is

called asymmetric information.

• There are two specific manifestations related to

asymmetric information in markets:

– Adverse selection

– Moral hazard

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-22

Uncertainty and the Market

Selection

• Adverse selection refers to situations where

individuals have hidden characteristics and in

which a selection process results in a pool of

individuals with undesirable characteristics.

– In this context, a hidden characteristic is something

that one party to a transaction knows about itself

but which are unknown by the other party.

Uncertainty and the Market

Hazard

• Moral hazard refers to a situation where one

party to a contract takes a hidden action that

benefits his or her at the expense of another

party.

– In this context, a hidden action is an action taken by

one party in a relationship that cannot be observed

by the other party.

• One way to mitigate the moral hazard problem

is an incentive contract.

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-24

Uncertainty and the Market

Signaling

• Another way to mitigate the problem of moral

hazard is signaling, which is an attempt by an

informed party to send an observable indicator

of his or her hidden characteristics to an

uninformed party.

• For signaling to be effective it must be:

– observable by the uninformed party.

– a reliable indicator of the unobservable

characteristic(s) and difficult for parties with other

characteristics to easily mimic.

Uncertainty and the Market

Screening

• A final way to mitigate the moral hazard

problem is by screening, which is an attempt by

an uninformed party to sort individuals

according to their characteristics.

• Screening may be achieved through a self-

selection device.

– A self-selection device is a mechanism in which

informed parties are presented with a set of

options, and the options they choose reveal their

hidden characteristics to an uninformed party.

Auctions

Types of Auctions

• An auction is a mechanism where potential buyers

compete for the right to own a good, service, or, more

generally, anything of value.

• Sellers participating in an auction offer an item for sale,

and wish to obtain the highest price.

• Buyers participating in an auction seek to obtain the item

at the lowest possible price.

– Bidders’ risk preferences can affect bidding strategies and the

expected revenue a seller receives.

• Four basic auction types:

– English (ascending-bid)

– First-price, sealed-bid

– Second-price, sealed-bid

– Dutch (descending-bid)

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-27

Auctions

• The timing of bidder decisions (simultaneously

or sequentially)

• The amount the winner is required to pay.

Auctions

English Auction

• An English auction is an ascending sequential-

bid auction in which bidders observe the bids of

others and decide whether or not to increase

the bid. The auction ends when a single bidder

remains; this bidder obtains the item and pays

the auctioneer the amount of the bid.

– Bidders continually obtain information about one

another’s bids.

– Bidder who values the item the most will win.

Auctions

• A first-price, sealed-bid auction is a

simultaneous-move auction in which bidders

simultaneously submit bids to an auctioneer.

The auctioneer awards the item to the highest

bidder, who pays the amount bid.

– Bidders obtain no information about one another’s

bids.

– Bidder who values the item the most will win.

Auctions

• A second-price, sealed-bid auction is a

simultaneous-move auction in which bidders

simultaneously submit bids to an auctioneer.

The auctioneer awards the item to the highest

bidder, who pays the amount bid by the second-

highest bidder.

– Bidders obtain no information about one another’s

bids.

– Bidder who values the item the most will win, but

pays the second-highest bid.

Auctions

Dutch Auction

• A Dutch auction is a descending sequential-bid

auction in which the auctioneer beings with a

high asking price and gradually reduces the

asking price until one bidder announces a

willingness to pay that price for the item.

– Bidders obtain no information about one another’s

bids throughout the auction process.

– Bidder who values the item the most will win and

pay the amount of his or her bid.

Auctions

Strategic Equivalence of Dutch

and First-Price Auctions

• The Dutch and first-price, sealed-bid auctions

are strategically equivalent; that is, the optimal

bids by participants are identical for both types

of auctions.

Auctions

Information Structures

• While the four auction types differ with respect

to the information bidders have about the bids

of other bidders, bidders also have different

information structures about the value of their

own bids.

– Perfect information

– Independent private values

– Affiliated (or correlated) value estimates

• Special case: common-value auctions

Auctions

for Risk-Neutral Bidders

• An optimal bidding strategy for risk-neutral

bidders is a strategy that maximizes a bidder’s

expected profit.

• Optimal bids depends on the

– type of auction.

– information available to bidders at the time of

bidding.

Strategies for Independent Auctions

• With independent private values, bidders know his or her

own values prior to the auction start.

• English auction

– Remain active until the price exceeds his or her own valuation of

the object.

• Second-price, sealed-bid auction

– Bid his or her own valuation of the item. This is a dominant

strategy.

• First-price, sealed-bid auction (strategically equivalent to the

Dutch auction)

– Bid less than his or her valuation of the item. If there are 𝑛 bidders

who all perceive valuations to be evenly (or uniformly) distributed

between a lowest and highest possible valuations, 𝐿 and 𝐻,

respectively, then the optimal bid, 𝑏, for a player whose own

valuation is 𝑣 is:

𝑣−𝐿

𝑏=𝑣−

𝑛

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-36

Auctions

Private Value Auctions In Action: Problem

• Consider an auction where bidders have

independent private values. Each bidder

perceives that valuations are evenly distributed

between $1 and $10. Sam knows his own

valuation is $2. Determine Sam’s optimal

bidding strategy in:

– A first-price, sealed-bid auction with two bidders.

– A Dutch auction with three bidders.

– A second-price, sealed-bid auction with 20 bidders.

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-37

Auctions

Strategies for Independent

Private Value Auctions In Action: Answer

• Sam’s optimal bid in a first-price, sealed-bid

2−1

auction with two bidders is 𝑏 = 2 − =

2

$1.50.

• Sam’s optimal bid in a Dutch auction with three

2−1

bidders is 2 − = $1.67.

3

• Sam’s optimal bid in a second-price, sealed-bid

auction with 20 bidders is to bid his true

valuation, which is $2.00.

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-38

Auctions

• Bidders do not know their own valuations for an item,

nor others’ valuations.

– Implication: makes bidders vulnerable to the winner’s curse,

which is the “bad news” conveyed to the winner that his or

her estimate of the item’s value exceeds the estimates of all

other bidders.

• To avoid the winner’s curve in a common-value auction, a

bidder should revise downward his or her private

estimate of the value to account for this fact.

• The auction process may reveal information about how

much the other bidders value the object.

– The winner’s curse is most pronounced in sealed-bid auctions

since bidders don’t learn about other player’s valuation.

– English auction, in contrast, provides bidders with

information. Therefore, bidders may have to revise up their

initial bids.

© 2017 by McGraw-Hill Education. All Rights Reserved. 12-39

Auctions

Expected Revenues in

Alternative Types of Auctions

Comparison of expected revenue in auctions with

risk-neutral bidders

Independent private values English=Second-price = First-Price = Dutch

Affiliated value estimates English > Second-price > First-price = Dutch

- May Artcoz Newsletter 2017Transféré parJane Church
- UncertaintyTransféré parAndika Saputra
- SaintGobainChakanPune_071114Transféré parRamasamy Babu
- #2Transféré parIvy Cheah
- Weekly Reminder March 17, 2014Transféré parPauldingProgress
- Black Art of Winning Ma AuctionsTransféré parzeakian
- 09948070.pdfTransféré parDave Masorn
- Auction TheoryTransféré parSaurav Dutt
- Utility Theory & Prospect TheoryTransféré parfahd_faux9282
- Rule: Acquisition regulations: Head of contracting activity redefinedTransféré parJustia.com
- q4 answerTransféré parundead_ub
- Online Auction SynopsisTransféré parGaus Patel
- 1-s2.0-S0022053104001991-mainTransféré parAziz Adam
- 1 - Complaint (1)Transféré parjmaglich1
- L10_L11_ForecastExperimentDebrief050415Transféré parJoseph Contreras
- M362K Spring 2017 Course CalendarTransféré pare_mmsh
- Very ImportantTransféré parSajib Jahan
- Lesson 2Transféré parTony Del Piero
- PubMatic RTB White PaperTransféré parsatish730
- GMSSTransféré parKhazanah Hijau E
- Sports Memorabilia Auction March 2011Transféré parImperial_Sports
- Vault-Hedge Fund & Pri. Equity InterviewsTransféré parDarylChan
- 2004_01Transféré parFélix Bangoura
- Online stuffTransféré pareliud2544
- Subject ScheduleTransféré parDD97
- NYR17320_SaleCatTransféré parperrychem
- Diez 2010Transféré parbe
- APS Outline (2)Transféré parSahar Idrees
- lawTransféré paryanyaners
- Property Sample questionsTransféré parJessica Joyce Penalosa

- Attachment 1Transféré parJessie Sethdavid
- Second Midterm With Answers Summer 2012Transféré parfloryb156
- 8 PuzzleTransféré parJessie Sethdavid
- L02CS262W2019.4Transféré parJessie Sethdavid
- op.docxTransféré parJessie Sethdavid
- you are wonderful.docxTransféré parJessie Sethdavid
- opTransféré parJessie Sethdavid

- Platelet StorageTransféré pardrhammadtufail
- Assignment 2Transféré parVenkatesh Prasad
- 2003_hanushek Et Al_does Peer Ability Affect Student AchievementTransféré parHari Seldon
- Multifactor Asset ReturnsTransféré parAbhi Suri
- Chapter 07 Solutions ManualTransféré parImroz Mahmud
- Book Buying Patterns_USEFULTransféré parDenise Wu
- 17.2000.JNM103 Surface fractal computation and its application to immunofluorescent histochemical studies of calpain and calpastatin in PC12 cells. Authors: DePetrillo PB, Yang Q, Rackoff J, SanMiguel A, Karimullah K.Transféré parPaolo
- Lecture 12Transféré parmachinelearner
- 2012.Ugulino.wearableComputing.har.Classifier.ribbONTransféré parBucur Radu
- 07 Hypothesis TestingTransféré pardhanoj6522
- Evaluation of Sires Using Different Sire Evaluation Methods on the Basisof First Lactation Traits in Sahiwal Cattle 2157 7579 1000296Transféré parYuel F. Sanchez Luna
- nnnTransféré parHosalya Devi
- Stat PrimerTransféré parschaltegger
- Creative Strategies in American and Japanese Tv CommercialsTransféré parjelena79
- Msc 1st Physics Mathaematical PhysicsTransféré parNaresh Gulati
- Homomorphic Filtering of Speckle Noise From Computerized Tomography (CT) Images Using Adaptive Centre-Pixel-Weighed Exponential FilterTransféré parAI Coordinator - CSC Journals
- 1 4 2 PPT Survey MethodologyTransféré parakrause
- A Method for Collaboratively Developing and Validating a RubricTransféré paralex
- Statistics PaperTransféré parkishan ivjay
- Stat OutlineTransféré parMuhammad Khalid
- BD-Handbook-v5.pdfTransféré parhuze_nedian
- LSSGB Lesson6 ControlTransféré parSanmeet S Sahni
- buslytc-case1Transféré parNeel Peswani
- A Probability PrimerTransféré parAmber Habib
- math 123Transféré parGeejayFerrerPaculdo
- Six Sigma GlossaryTransféré parDango Qtr
- ch11-standard-costs.pdfTransféré parKrizza Mae
- Fragility Analysis of Corroded PipelineTransféré parAladdin Gachanja Hassan
- DOE NotesTransféré parkeansheng
- SyllabusSampleQuestions AshokaTransféré parakanksha450