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25.1 Optimal Bidding in a Second Price Sealed Bid Auction: Don't Underbid This problem helps to show hostr a bidder should bid in second price
25.1 Optimal Bidding in a Second Price Sealed Bid Auction: Don't Underbid This problem helps to show hostr a bidder should bid in second price sealed bid auction with private values. Assume that the bidder values the item being sold at $7. Therefore, the bidder's net profit if he wins is $7 l?: where P is the price, the highest of E.\" of the other bids in the auction. If the bidder loses, the bidder's prot is 0. Compare the bidder's prot from bidding exactly his valuation to the bidder's prot from bidding less than his valuation. You can do so by lling in his prot in each case given in the table below. If the highest If he bids 5 If he bids 7 rival bid is... 4 6 T 8 10 Is one of these options [bidding 5 vs. bidding 7) always going to bring a higher payoff? Is one of these options never worse than the other
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