Adversarial risk analysis for first-price sealed-bid auctions.

Abstract

Adversarial risk analysis (ARA) is an upcoming methodology that is considered to haveadvantages over the traditional decision-theoretic and game-theoretic approaches. ARAsolutions for first-price sealed-bid (FPSB) auctions have been found but only under strongassumptions which make the model somewhat unrealistic. In this paper, we use ARAmethodology to model FPSB auctions using more realistic assumptions. We define a newutility function that considers bidders’ wealth, we assume a reserve price and find solutionsnot only for risk-neutral but also for risk-averse as well as risk-seeking bidders. We modelthe problem using ARA for non-strategic play and level-k thinking solution concepts.