Suppose a piece of art has recently become available for sale and will be auctio

Question

Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder with the winner paying an amount equal to the second highest bid. Assume most collectors know that Frances places a value of 65,000 on the art piece. Suppose no one else shows up and Frances bids 32,500 and wins the piece of art. The expected price paid by Frances with no other bidders present is __________? Suppose Jake is recruited to the auction . Jake is known to value the art piece at $52,000. The expected price paid by Frances given the presence of the second bidder is __________?
Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder with the winner paying an amount equal to the second highest bid. Assume most collectors know that Frances places a value of 65,000 on the art piece. Suppose no one else shows up and Frances bids 32,500 and wins the piece of art. The expected price paid by Frances with no other bidders present is Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder with the winner paying an amount equal to the second highest bid. Assume most collectors know that Frances places a value of 65,000 on the art piece. Suppose no one else shows up and Frances bids 32,500 and wins the piece of art. The expected price paid by Frances with no other bidders present is __________? Suppose Jake is recruited to the auction . Jake is known to value the art piece at $52,000. The expected price paid by Frances given the presence of the second bidder is __________?

Explanation / Answer

The expected price paid by Frances with no other bidders present is 32,500.

This is because no other bidders are there and Frances gets the piece of art by paying what he bids, ie. 32,500.

Suppose Jake is recruited to the auction . Jake is known to value the art piece at $52,000. The expected price paid by Frances given the presence of the second bidder is 52000.

As the piece of art is valued at 52000, so Frances has to pay the valued price irrespective of the second bidder.

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