Why buyers don't bid their true value anymore

Why buyers don't bid their true value anymore

In first-price auctions you pay exactly what you bid. So buyers got smart and started "bid shading" (guessing the lowest amount that still wins).

Why it matters: a buyer worth $4 to you might shade down to $2.30 because that's all it takes to win. That's not them cheating, it's them not overpaying.

Tiny example: floor is $1.00, second-best bid is $2.00. A smart buyer shades to $2.05, not $4.00.

One thing to try: a sensible floor nudges shaded bids up. If you know two strong buyers compete nightly, a floor just under their usual gap recovers value.

In plain English: in first-price, buyers bid to win, not to reveal what they'd really pay.