them a profit.A rational dealer will not place a bid which is higher than the price they car xpect antique for.Given that all dealers are rational,the winning bid will tend to be below the expected reae price. When she bids in the auction that is open to the public she is bidding against the people who are likely to come into her shop.You can assume that local antique lovers will frequent these auctions as well as the bcal antigue shops.In the case where she wins the bid at one of these open auctions.the other participants have decided that the price is too high.In this case,they will not come into her r shop and pay any highe which wouldea her a profit this case if she is able to resell to a customer from out of the area,or who was not at the auction,and who has a sufficiently high reservation price.In any event,the winning bid price will tend to be higher because she was bidding against customers rather than dealers. 13.You are in the market for a new house and have decided to bid for a house at auction.You believe that the value ofthe house is betw en$125,000ands150,000, but you are uncertain as to where in the range it might be.You do know,however. that the seller has reserved the right to withdraw the house from the market if the winning bid is not satisfactory. a.Should you bid in this auction?Why or why not? Yes you shoul bid if you are confident about your estimate of the value of the house and/or if you allow for the possibility of being wrong To albw for the possibility of being wrong.yo reduce your high bid by an amountequl to the of the winning bidder.If you have experience at auction,you will have infrmationon how likely you are to enter a wrong bid and can then adjust your high bid accordingly. b.Suppose you are a building contractor.You plan to improve the house and then to resell it at a profit.How does this situation affect our answer to (a)? Does it de end tent to which your skills are uniquely suitable improving this particular house? You need to be aware of the winner's curse which says that the winner is likely to be the person who most overestimated the value ofthe house.Ifthere are a range of bids,some below the actual value and some above the actual value,the winner will be the person with toverestimate ofthe value.Again,you need to be very confident in your estimate ng wrong.Ifyou many such bids in the past.you will be able toestimate how and adjus accordingly. them a profit. A rational dealer will not place a bid which is higher than the price they can expect to resell the antique for. Given that all dealers are rational, the winning bid will tend to be below the expected resale price. When she bids in the auction that is open to the public she is bidding against the people who are likely to come into her shop. You can assume that local antique lovers will frequent these auctions as well as the local antique shops. In the case where she wins the bid at one of these open auctions, the other participants have decided that the price is too high. In this case, they will not come into her shop and pay any higher price which would earn her a profit. She will only tend to profit in this case if she is able to resell to a customer from out of the area, or who was not at the auction, and who has a sufficiently high reservation price. In any event, the winning bid price will tend to be higher because she was bidding against customers rather than dealers. 13. You are in the market for a new house and have decided to bid for a house at auction. You believe that the value of the house is between $125,000 and $150,000, but you are uncertain as to where in the range it might be. You do know, however, that the seller has reserved the right to withdraw the house from the market if the winning bid is not satisfactory. a. Should you bid in this auction? Why or why not? Yes you should bid if you are confident about your estimate of the value of the house and/or if you allow for the possibility of being wrong. To allow for the possibility of being wrong, you reduce your high bid by an amount equal to the expected error of the winning bidder. If you have experience at auction, you will have information on how likely you are to enter a wrong bid and can then adjust your high bid accordingly. b. Suppose you are a building contractor. You plan to improve the house and then to resell it at a profit. How does this situation affect your answer to (a)? Does it depend on the extent to which your skills are uniquely suitable to improving this particular house? You need to be aware of the winner’s curse which says that the winner is likely to be the person who most overestimated the value of the house. If there are a range of bids, some below the actual value and some above the actual value, the winner will be the person with the largest overestimate of the value. Again, you need to be very confident in your estimate of the value of the house and/or allow for the possibility of being wrong. If you have made many such bids in the past, you will be able to estimate how often you are wrong and adjust accordingly