Informationally Robust Optimal Auction Design

37 Pages Posted: 16 Dec 2016

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Benjamin A. Brooks

Princeton University - Department of Economics

Stephen Morris

Princeton University - Department of Economics

Date Written: December 16, 2016

Abstract

A single unit of a good is to be sold by auction to one of two buyers. The good has either a high value or a low value, with known prior probabilities. The designer of the auction knows the prior over values but is uncertain about the correct model of the buyers’ beliefs. The designer evaluates a given auction design by the lowest expected revenue that would be generated across all models of buyers’ information that are consistent with the common prior and across all Bayesian equilibria. An optimal auction for such a seller is constructed, as is a worst-case model of buyers’ information. The theory generates upper bounds on the seller’s optimal payoff for general many-player and common-value models.

Keywords: optimal auctions, common values, information structure, model uncertainty, ambiguity aversion, robustness, Bayes correlated equilibrium, revenue maximization, revenue equivalence, information rent

JEL Classification: C72, D44, D82, D83

Suggested Citation

Bergemann, Dirk and Brooks, Benjamin A. and Morris, Stephen Edward, Informationally Robust Optimal Auction Design (December 16, 2016). Cowles Foundation Discussion Paper No. 2065. Available at SSRN: https://ssrn.com/abstract=2886456 or http://dx.doi.org/10.2139/ssrn.2886456

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Benjamin A. Brooks

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Stephen Edward Morris

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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