Accounting for Cognitive Costs in On - lineAuction

Many auction mechanisms, including rst and second price ascending and sealed bid auctions, have been proposed and analyzed in the economics literature. We compare the usefulness of diierent mechanisms for on-line auctions, focusing on the cognitive costs placed on users (e.g. the cost of determining the value of a good), the possibilities for agent mediation, and the trust properties of the auction. Diierent auction formats prove to be attractive for agent mediated on-line auctions than for traditional oo-line auctions. For example, second price sealed bid auctions are attractive in traditional auctions because they avoid the communication cost of multiple bids in rst price ascending auctions , and the \gaming" required to estimate the second highest bid in rst price sealed bid auctions. However, when bidding agents are cheap, communication costs cease to be important, and a progressive auction mechanism is preferred over a closed bid auction mechanism, since users with semi-autonomous agents can avoid the cognitive cost of placing an accurate value on a good. As another example, when an on-line auction is being conducted by an untrusted auctioneer (e.g. the auctioneer is selling its own items), rational participants will build bidding agents that transform second price auctions into rst price auctions.