Uncertainty Paradox: Why You Should (Not) Lie

28 Pages Posted: 18 Nov 2021 Last revised: 6 Nov 2024

See all articles by Seungwon (Eugene) Jeong

Seungwon (Eugene) Jeong

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Dong-Hyuk Kim

School of Economics, University of Queensland

Date Written: November 05, 2024

Abstract

When the number of bidders need not be revealed, the auctioneer may consider overreporting the number of bidders to increase revenue. However, we show that overreporting lowers revenue if misreporting induces uncertainty about the number of bidders. That is, seemingly profitable misreporting can be unprofitable when misreporting leads to uncertainty, which we call an Uncertainty Paradox. We also introduce the impact procurement, where a bidder's cost is a unit cost multiplied by the impact function. Unlike auctions, the procurer may prefer uncertainty, and the incentive to misreport increases with the impact, and in the limit, uncertainty "disappears."

Keywords: uncertainty, impact procurement, discount auction, risk aversion, incorrect belief, shill bidding

JEL Classification: D44, D81, H57

Suggested Citation

Jeong, Seungwon (Eugene) and Kim, Dong-Hyuk, Uncertainty Paradox: Why You Should (Not) Lie (November 05, 2024). Available at SSRN: https://ssrn.com/abstract=3944677 or http://dx.doi.org/10.2139/ssrn.3944677

Seungwon (Eugene) Jeong (Contact Author)

College of Business, Korea Advanced Institute of Science and Technology (KAIST)

Daejeon, 34141
Korea, Republic of (South Korea)

Dong-Hyuk Kim

School of Economics, University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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