The Becker-DeGroot-Marschak (BDM) mechanism

The Becker-DeGroot-Marschak (BDM) mechanism is a method used to determine the true value people assign to an item. Participants state the highest price they’re willing to pay for an item. Then, a random price is drawn; if this random price is lower than the participant’s bid, they purchase the item at that random price. If it’s higher, they don’t buy. This setup encourages honest bidding because participants maximize their expected value by revealing their true preferences, making BDM a reliable way to gauge genuine valuations in economic experiments.