Why everyone shades
Pay your own bid and honesty earns you nothing. Watch four bidders best-respond round after round, and see where the bids stop falling.
Run with First-price sealed bid. The link below opens this over repeated rounds, where the bidders adjust as they learn. Here is the first round on its own.
| Bidder | Worth to them | Bid |
|---|---|---|
| A | 95 | 95 |
| B | 80 | 80 |
| C | 65 | 65 |
| D | 50 | 50 |
Step by step
- collect bids Each bidder submits one sealed bid; private values are never revealed.
- sort Bids are ranked from highest to lowest. Equal bids keep the order the bidders were listed in, so a tie goes to the first-listed bidder.
95 >= 80 >= 65 >= 50
- pick winner The highest eligible bid wins the item.
argmax b_i = A at 95
- price rule The winner pays exactly what they bid, so every unit of bid above the runner-up is money left on the table. That is why bidders shade their bids below their true value here, and why the bids you see are not values.
p = b_i = 95
- payments A pays their own bid of 95; the losers pay nothing.
revenue = 95
How it came out
| Winner | A |
|---|---|
| Price paid by the winner | 95 |
| Seller revenue | 95 |
| Value created | 95 |
| Went to whoever valued it most | yes |
| Bidder | Paid | Ended up with |
|---|---|---|
| A | 95 | 0 |
| B | 0 | 0 |
| C | 0 | 0 |
| D | 0 | 0 |
Open this example in the walkthrough
The link carries the whole setup, so you can change a bid and watch what moves — and send the result to somebody else.