Article ID: | iaor200944711 |
Country: | United States |
Volume: | 5 |
Issue: | 1 |
Start Page Number: | 19 |
End Page Number: | 21 |
Publication Date: | Mar 2008 |
Journal: | Decision Analysis |
Authors: | Gerchak Yigal |
Keywords: | decision theory |
Society seems to have developed several ingenious schemes for allocating jointly owned indivisible items. One such scheme, occasionally used to divide estates among heirs, is a knockout auction (Engelbrecht-Wiggans 1994). In a knockout auction, the joint owners bid for the item; the highest bidder obtains it and pays the others their share of the winning bid. This paper follows the advice of Raiffa and Rothkopf to view auctions from a decision-analytic point of view, and analyzes the optimal bid of an expected-utility maximizing participant in a knockout auction who is uncertain about the bids of others, and contrasts it to the properties of optimal declarations in buy-sell agreements, derived in Gerchak and Fuller (1992).