Your bid decides whether you win. Not what you pay.
William Vickrey analyzed auctions in which the highest bidder wins but pays the second-highest bid. Under private-value assumptions, bidding your value is weakly dominant.
Inside this model
You win only when your bid exceeds the rival maximum; ties go to the rival. Second-price utility is value−rival if you win, otherwise zero. First-price utility is value−bid if you win. Rivals are held fixed while your bid changes.
Out in the world
A practical use
Auction rules can make truthful reporting more attractive, rather than relying on bidders to volunteer private information.
A useful lens. Not a universal law.
- The result assumes independent private values, no collusion, no budget constraint and no effect of losing on utility. It does not transfer unchanged to common-value auctions.
Associated thinkers
Further reading
Explore the original research or the teaching reference behind this experiment.
Nobel committee — Vickrey and auction incentives ↗