Counting pure equilibria in a sealed coin-chest auction
Question
Ten bidders compete for a chest whose dollar value equals the number of heads in fair coin tosses made out of sight; everyone knows this rule but nobody sees the tosses. Each bidder submits a bid that is a non-negative whole number of dollars. A highest bidder (chosen uniformly at random if several tie) receives the chest and pays their bid; all other bids are refunded. Bidders are risk-neutral (utility is linear in money over the relevant range of $0 to $10). How many pure-strategy Nash equilibria (bid profiles where every player bids one value with certainty) does this game have?
Short answer
. The chest is worth $10 in expectation, so no one bids above 10. If two or more bid 10, everyone's payoff is and no deviation helps, whatever the others bid in : that gives profiles. Otherwise the only equilibrium is everyone bidding 9 (a lone 10-bidder would drop to 9, and any lower top bid invites outbidding), adding .
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Open the worked solutionLessons behind this question
- Counting and Combinatorics
- Sample Spaces, Events, and the Probability Axioms
- Conditional Probability, Total Probability, and Bayes' Rule
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