QUESTION 1 What is the dominant strategy in an ascending bid (or English) auction?

a. a bidder continues to bid up to the best estimate of the second highest bidder's value

b. a bidder continues to bid up to an amount less than the full amount that depends on the number of other bidders

c. a bidder continues to bid up to half of the amount they value the item

d. a bidder continues to bid up to the full amount they value the item

6 points

QUESTION 2 What is the optimal strategy in a first-price, sealed-bid auction?

a. bid less than the full value at which one values the item

b. bid one's best estimate of the median bidder's value

c. bid the full amount at which one values the item

d. bid one's best estimate of the mean bidder's value

6 points

QUESTION 3 A firm that hosts auctions for art gives the following instructions for bidding: ``To place a bid in the saleroom, raise your paddle until the Auctioneer acknowledges you. The auctioneer increases the bids by increments that usually do not exceed ten percent of the previous bid. When a sole bidder remains, the Auctioneer brings down the hammer and declares the lot sold [for the amount of the highest bid].'' Based on that description, what type of auction does the auction house run?

a. descending-price (or Dutch) auction

b. ascending-price (or English) auction

c. Vickrey auction

d. first price, sealed-bid auction

6 points

QUESTION 4 What is expected utility?

a. probability weighted average of possible profits

b. an evenly weighted average of possibility profits

c. a probability weighted average of possible utility levels

d. the profit from a given decision

6 points

QUESTION 5Suppose an investment has three possible outcomes. There is a 40% chance that it brings a profit of 22,500. There is a 30% chance that it brings a profit of 10,000. There is a 30% chance that is brings a profit of 0. What is the expected profit (or expected value of the profit) for this investment?

7 points

QUESTION 6Continue to suppose an investment has three possible outcomes. There is a 40% chance that it brings a profit of 22,500. There is a 30% chance that it brings a profit of 10,000. There is a 30% chance that is brings a profit of 0. Suppose a decision makers utility function can be described by U(w)=w^0.5. What is the expected utility of this investment?

3 points

QUESTION 7Continue to suppose an investment has three possible outcomes. There is a 40% chance that it brings a profit of 22,500. There is a 30% chance that it brings a profit of 10,000. There is a 30% chance that is brings a profit of 0. Suppose a decision makers utility function can be described by U(w)=w^0.5. What is this investment's certainty equivalence for this decision maker?