Adversarial Risk Analysis for First-Price Sealed-Bid Auctions

TL;DR

This paper applies Adversarial Risk Analysis to first-price sealed-bid auctions, incorporating realistic assumptions such as wealth considerations, reserve prices, and different risk attitudes, using both non-strategic and level-k models.

Contribution

It introduces a novel ARA-based framework for FPSB auctions with more realistic assumptions and diverse bidder risk profiles, extending prior models.

Findings

ARA solutions under realistic assumptions

Inclusion of wealth and reserve prices in models

Analysis of risk-averse, risk-neutral, and risk-seeking bidders

Abstract

Adversarial Risk Analysis (ARA) is an upcoming methodology that is considered to have advantages over the traditional decision theoretic and game theoretic approaches. ARA solutions for first-price sealed-bid (FPSB) auctions have been found but only under strong assumptions which make the model somewhat unrealistic. In this paper, we use ARA methodology to model FPSB auctions using more realistic assumptions. We define a new utility function that considers bidders' wealth, we assume a reserve price and find solutions not only for risk-neutral but also for risk-averse as well as risk-seeking bidders. We model the problem using ARA for non-strategic play and level-k thinking solution concepts.