Selling to the Mean
53 Pages Posted: 18 Jul 2015 Last revised: 20 Jul 2015
Date Written: June 19, 2015
We study optimal selling strategies of a seller who is poorly informed about the buyer's value for the object. When the max-min seller only knows that the mean of the distribution of the buyer's valuations belongs to some interval then nature can keep him to payoff zero no matter how much information the seller has about the mean. However, when the seller has information about the mean and the variance, or the mean and the upper bound of the support, the seller optimally commits to a randomization over prices and obtains a strictly positive payoff. In such a case additional information about the mean and/or the variance affects his payoff.
Keywords: Optimal mechanism design, Robustness, Incentive compatibility, Individual rationality, Ambiguity aversion
JEL Classification: C72, D44, D82
Suggested Citation: Suggested Citation