Dynamic Consistency, Revelations in Auctions and the Structure of Preferences.

Analyzing the optimal bidding behavior in ascending-bid auctions and second-price, sealed-bid auctions with independent private values, the authors show that expected utility maximizing behavior is equivalent to (1) dynamically consistent bidding in ascending-bid auctions; (2) the equivalence of the optimal bids in ascending-bid auctions and in second-price, sealed-bid auctions; and (3) bidding the value of the object in second-price, sealed-bid auctions. In addition, the optimal bid in ascending-bid auctions equals the value of the object, if and only if, the bidder's preferences on lotteries are both quasi-concave and quasi-convex. Copyright 1989 by The Review of Economic Studies Limited.