Consider the following simple model of a common values auction. Two buyers each obtain a private signal about the value of an object. The signal can be either high (H) or low (L) with equal probability. If both obtain signal H, the object is worth 1; otherwise, it is worth 0. What is the expected value of the object to a buyer who sees signal L? To a buyer who sees signal H? Suppose buyers bid their expected value computed in part (a). Show that they earn negative profit conditional on observing signal H—an example of the winner’s curse.
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
18.8
Consider the following simple model of a common values auction. Two buyers each obtain a private signal about the value of an object. The signal can be either high (H) or low (L) with equal
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What is the
expected value of the object to a buyer who sees signal L? To a buyer who sees signal H? -
Suppose buyers bid their expected value computed in part (a). Show that they earn negative profit conditional on observing signal H—an example of the winner’s curse.
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