Midterm Exam Credit Instructions Spring 2015 You may read the following papers and submit your written reports on them in order to improve your exam score, as explained in our course syllabus. Completing this work may improve your exam score, but cannot raise your grade on attendance, homework, the project, or other exams. Note that if you turn in only one of these reading summaries, it must be the rst one listed; if you turn in two, they must be the rst and second, etc. You cannot pick and choose between them. For each paper, you are provided with a list of questions. The rst question species which parts of the paper you are expected to read, and asks for a general summary. I imagine that an adequate summary will take approximately one half to one full typed, single-spaced page of text1. In addition to summarizing the reading in your own words, you should answer each of the other questions { depending on the question, a complete answer may take a sentence or a full paragraph. If you feel unsure about whether you understand a question or whether your answers are complete, you should feel free to talk to me about it. The due date is March 18 (the Wednesday before spring break) at noon for the rst report, and March 30 (the Monday after spring break) in class for the second and third reports. 1. Counterspeculation, Auctions, and Competitive Sealed Tenders William Vickrey, Journal of Finance, Volume 16, Issue 1 (March 1961), 8-37. (a) Read the introduction, Sections II (only pages 14-17) and III, and the Conclusion. Summarize the main points of each of these sections. (b) What was the motivating idea that inspired Vickrey’s study of auctions? (c) The terminology in this paper is somewhat dierent from the terminology we have used in class. Identify the terms that we have used in class that are equivalent to the following terms from the paper: Ordinary or progressive auction Homogeneous rectangular case (d) Explain the meaning of the statement that the outcome of the ordinary or pro- gressive auction is Pareto Optimal. Will the outcome of the Dutch auction also be Pareto Optimal? Why or why not? (e) List the assumptions made in the analysis of the Dutch auction game. What elements are ruled out from the start? (f) Quote the sentences in the article in which Vickrey proposes a new type of sealed bid auction (the rules that economists would later call the Vickrey auction). In the discussion that follows his proposal, what are the advantages, possible problems, and proposed solutions, of using this type of auction? 1I am not particular about the format, but if you are looking for formatting guidelines then I suggest 1 inch margins and 12 point font. The summary will be judged on whether it re ects a thorough understanding of the paper, not on whether it lls up a page 2. Vickrey Auctions in Practice: From Nineteenth Century Philately to Twenty-rst Century Commerce David Lucking Reiley, Journal of Economic Perspectives, Volume 14, Number 3 (Summer 2000), 183-192. (a) Read the entire paper and write a summary of it. What are the central arguments of the paper, and what evidence does the author use to support those arguments? (b) What does it mean to say that optimal bidding in an auction isrobust? In what kind of auction is optimal bidding robust, and why? (c) When was the earliest proposal of the Vickrey-style auction? (Hint: you may have to read the paper very thoroughly to nd the date.) (d) What is absentee bidding, and what is its connection to the Vickrey auction? (e) What does the author say about the possibility of the seller cheating in English auctions versus in Vickrey auctions? Which one is harder? (f) Discuss: if bidders expect sellers to cheat in a Vickrey auction, how will that aect the bidder’s optimal bidding strategy? 3. Independent Private Value Auctions: Bidder Behaviour in First-, Second- and Third- price Auctions With Varying Numbers of Bidders John H. Kagel and Dan Levin, The Economic Journal, 103 (July 1993), 868-879. (a) Read the entire paper (but skip the appendix for now). In your summary, be sure to describe the experimental setup and the experiment results. (b) The introduction lists four ways that the third price auction contrasts with the rst price and second price auctions. For each point, explain how that feature of the third price auction is dierent from the rst price auction and second price auction. For example: point (1) is that bids exceed private values. How is this dierent from the rst price auction { are bids greater than, equal to, or less than private values? Is it the same, or dierent, in the second price auction? (c) Explain why bidders will bid above their valuation in the third price auction. (d) What do the following acronyms stand for? IPV FPA, SPA, and TPA RNNE (This is a tricky one. Feel free to ask me for a clue, once you have come up with your own best guess.) CARA (e) Discuss: do the experimental results conrm the theoretical predictions? (f) Now look at the Appendix. According to Case 1 in the applications that follow the Theorem and Lemma: What is the risk neutral equilibrium for the kth price auction when the bid- ders’ valuations are independently and identically distributed from a uniform distribution on [x; x]? What is the risk neutral equilibrium in a fourth price auction with 9 bidders whose valuations are independently and identically distributed from a uniform distribution on [1:00; 18:00] PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT
