2017: "If there's a storm and people buy out all the shampoo, an auction might make sense." 2020: "Coronavirus says we need an auction on toilet paper, do I hear $500 a roll?"
He missed the main benefit of a Dutch auction. You usually sell multiple lots simultaneously by Dutch auction. E.g.: You have 20 similar apple trees to sell. Price drops to £15 and someone bids. They have an option on all 20 at £15 each. If they take less than 20 the auction resumes. The next highest bid has an option on all remaining trees. This maximises the sale price of sales containing multiple similar lots without selling each lot in small parcels.
hmm .. not really. You could implement that in an English auction, too. The main benefit is speed. Each lot is done in seconds. But the advantage plays out only on standardized items. The other end are sealed auctions: unique items, and you get months to do your bid.
@@tomasbickel58 Not really though, with the english auction, every time there is a sale you need to play the auction game again and find the next lowest price. With the dutch you just continue the natural process. Much less confusing for the bidders and wastes less time. Your not forcing everyone to keep bidding again and again on the same items.
My secret strategy for eBay auctions? Look for auctions where the seller has misspelled what he's selling. It wont get as many bids and will likely sell for less.
I wish Ebay would add a time buffer to the bids, so that as long as people are still bidding, bids will be accepted, something like 10 seconds or so. It might extend the bidding a minute or two, but that's how it works in a live auction. (at least that's how it was when I Iast got something off Ebay)
We ran a Vickrey auction with estate agents (realtors) to sell our house, we asked the agents to value the house and we would go with the middle value. We told them all this and the fact that there were three agents in the running. The aim was to stop them over inflating the house price to try to get our custom. Two just submitted their valuation but one had a nervous breakdown on the spot in our kitchen, unable to work out how to game the system to ensure our custom. It was rather funny.
@@mujtabaalam5907 It's not a real vickrey auction because the realtors weren't buying the house, they were bidding for a job of selling it. In a vickrey auction a rational bidder would bid the true value of the object as they see it. I don't think there is any set winning strategy for this estate agent auction.
It appears to me that the reason people bid higher in dutch auctions compared to sealed bid auctions is because they can physically see everyone around them who could bid before them, so they have a kind of 'jump the gun' mindset, whereas in a sealed bid auction people just think this is how much I would be prepared to pay, let's see if I get it.
The internet is a wonderful thing.... you can bid on a Dutch auction from your local coffeeshop with a laptop. In fact, this is already possible in the Dutch flower auctions; they still have the physical auction rooms (38 rooms, in four different locations in the country), but you can participate remotely.
I've been attending all types of auctions and selling on eBay for years. I can tell you from experience that live auctions will generally bring more than other types of auction, including silent auctions in which no one can see the other bids. That's not only because of the psychology that compels people to compete, but also because most people are somewhat flexible on the price they are willing to pay. Maybe they want to pay $10, but if given the option they will consider raising it to $12. The person in the video alluded to this when he mentioned that seeing your competitor bid justifies the bid amount and may compel you to increase your bid.
Well think about this. Someone will go into an auction and tell themselves 'I will only go up to this price', but they will always over shoot that a bit if they think its only slightly more for a winning bid.
Joe Lamond I'd be interested if this difference persists in real life professional traders, or if it's just (as so often) an insight from one-shot behavioral economics experiments. The latter doesn't translate well into anything practical.
I think it has a lot to do with not wanting to "lose" the item. They would be really upset if it was just $10 more than they were planning to pay and therefore decide to not allow the risk of losing the item.
In Ontario, Canada our electricity market uses an interesting bidding process. Every day is broken into 2 (or 5?) minute slots and the total electricity demand is predicted for each slot. Electricity generators bid on a chunk of each time slot based on how much generation capacity they have and what price they are willing to be paid. The time slots are filled with the lowest bidders first, then the next highest etc proportional to their generating capacity. Once the slot is full of generation capacity, EVERYONE gets paid the highest valid bid for their portion. Anyone who bid higher doesn't get to sell power. The result is that the large base-load generators bid at negative dollars to ensure their power is used (they can't turn on and off very quickly), and the rest of the slot is filled by the smaller players. In the end, everyone gets paid the same if they made it into the stack. There is an inherent incentive to bid low to stay in the stack, but if everyone bids low or negative they all lose money (some more than others). In theory the price tends toward the fairest price. The twist is that the generators that use solar and wind get paid an inflated fixed contract price regardless of the final bid, and the difference is made up by a Global Adjustment factor. This makes the market dysfunctional and our electricity prices insanely high.
Why does it make the market dysfunctional? The system still works as intended, only that some producers get to sell first and to a fixed price. For the remaining gap the bidding procedure is still in place
@@Lukas4182 it's dysfunctional because it's a fake market...prices get set through a "competitive" market, then consumers are saddled with the difference between market price and contract price anyway. Global Adjustment negates any price advantage of an open market. No one actually gets paid what they bid, from the nuclear operators who bid negative prices, to the wind operators that bid less than their contract price.
@@thebigmacd consumers pay the contract price, but only for the renewable part of the energy, right? The rest should still be determined by the market just like you described.. And there definitely is a market left, only that it's way more interesting due to fluctuating renewable production. So the market mechanism now is more important then ever
@@thebigmacd it does lead to the effect of occasional negative energy prices though, when the nuclear plants "win" with their negative bidding in times of low demand. But that's their own problem of not being flexible enough.
Man, this guy sure can talk. I could listen to him talk all day, he has a very nice, but authoritative, voice, that really makes you want to listen to what he says
because you already feel guilty that you are not sleeping (you should be and you know it), so you subconsciously compensate it by at least doing something you consider useful
CAUSE ALL BRADYS VIDEOS ARE AMAZING...AND HE HAS SOMETHING REALLY RARE NOWADAYS....HE IS A WONDERFUL INTERVIEWER....HE LETS PEOPLE TALK AND TALK WITHOUT INTERRUPTING THEM AND ALL HIS QUESTIONS ARE REALLY SPOT ON....!!!
I work in a liquor store and I have been trying to convince my boss to use a slo-mo dutch auction to allocate our Pappy Van Winkle allotment. My idea was to place the bottles in a case with an astronomical price on them, and then knock 5 dollars off the price each day until the bottles sell. Auctioning Liquor is illegal in my state but discounting it is not.
The dutch auction I learned was used when you're trying to get the most money for a fixed amount of product and was used to clear that product from the sellers facility. That the top bidder does NOT WANT all the items just some; so bidders bids are remembered, so it runs for a while collecting bids on what people are willing to pay for the quantity they want so the high bidder gets all the units they want and the next highest bidder can get the price THEY bid for the quantity they wanted.
13:10 "Ebay doesn't make it easy to know how much an item sells for". Ebay actually has a search filter for recently concluded auctions, it shows at least two weeks of history, maybe more.
I've heard about a different type of auction called an Amsterdam auction. It consists of two rounds. First, you have a regular English auction. Once the top price has been reached, the second round begins, where the auctioneer does a "dutch auction" counting down. If someone jumps in on the Dutch auction part, they then buy the house for the combined price of the two rounds, and the winner of the first round is paid a premium. If the second round price reaches zero, the person who won the first round gets the house for that price. Puts an interesting spin on things.
I'd love to hear about the psychology and math behind a 'penny' auction, which acts like an ascending auction, except where a person has to pay a fee or pay their bid, no matter if they win or lose the item.
Why boycotting? I'm sure if they had let the internet decide, laser kiwi would now be the official flag of New Zealand. I'm sorry, of Zealand McZeaface.
Another (non-mathematical) piece of advice for eBay buyers: If at first you don't succeed, try, try again. Once I REALLY wanted to buy a rare Rolling Stones album, so I kept on bidding every time I saw it for sale at a price I was willing to pay (which was far lower than it actually sold for). After several efforts, it seemed, everyone else who wanted it already bought a copy, so I was finally able to get it dirt-cheap!
A variation of the dutch auction is often used in the fixed income markets, when bonds are initially auctioned off in the primary market. In this type of auction, bids are in fact sealed. But in this type of auction, either by choice or by external factors, no individual bidder will be bidding for a large enough amount so as to win the entire offering. The method is therefore to count down from the highest bid until the auctioneer sees that the entire offering has been covered by bids. The price that secured the entire offering was covered by bids then becomes the price that all winning bidders pay. This creates some interesting game theoretical choices by bidders, usually that bidders will in fact submit multiple bids in a so-called "ladder", to ensure that they will most likely get at least some of the issue, but don't bid the market beyond where it would otherwise clear.
Just read this in a book, 'Thinking Fast And Slow'. The reason people bid higher in the dutch auction is called 'anchoring'. Its a cognitive bias where a suggestion influences ones decision or evaluation. The 'anchor' is the first bid. Since its very high, people tend to estimate the value higher than it is. Its proven to even work with values that hold no information about the accual thing that is presented. Thr book discribes an experiment where people spin a rigged wheel that goes from 0 to 100 but since its rigged, can only land on 10 or 65, wich they dont know. People had to spin that wheel and then estimate some value. Dont know what it was, maybe the price of something, maybe a temperature somewhere. Thats not important. The thing is, even though the value of the wheel had nothing to do with what was asked, people that spun a 10 on average estimated the value to be about 20 and people that spun 65 on average estimated the value to be above 40. Some random fact for all the psychology lovers here :)
If you get another chance to talk with him, I'd be curious about the effects of an auction in which the second highest bidder wins with the second highest bid price. I think that this is sometimes used in contracting work (in this case, the second lowest bidder), but I'm not 100% sure on that. EDIT: As opposed to the HIGHEST bidder winning with the second highest bidder's price.
~5:30 -- he says that people bid earlier in Dutch auction. My question: how is this affected by the starting value? If I hold a Dutch auction for the same thing with two groups, and one time I start at 10000 and one time I start with, say, 3000. Will I reach the same price, or will the 10000 group buy with higher price? (maybe some psychology will kick in, like, when I drop below 5000, people may start thinking that I am already past the half of the initial value and be more susceptible for buying...) With the sealed envelope, everybody makes up their own assessment of the price, but with Dutch, you are affected by the initial price, am I right?
panda4247 Do you know about the Anchor Effect discovered by Daniel Kahneman? :) It says, that people are e.g. willing to donate more to chartity if they get asked to donate a higher amount at first (e.g. 1000$? No. 100$? Yes, in contrast to 10$? Yes.)
Jonathan - no, I haven't heard that, at least not in the charity context. But yeah, it would be very similar thing. Also, we have some shops in my country with very ...unethical... practices. Let's say they sell margarine (or something else that you buy regularly, but not daily, you buy several boxes at once and it can last for month...) for, let's say 1.20€. Then, one day, a huge discount sign appears near it saying "(strikethrough not working here) -1.45€- NEW PRICE !! 1,30€" And people will buy it. And then, when the discount campaign is over, it goes back to 1.20 as if nothing happened. Actually, I haven't seen this in a while, but maybe 10 years ago, one huge store chain was famous for it. So... yeah, when some initial value is set high enough, people tend to overvalue things, or they are willing to pay more than they would without that initial value being seen.
It depends how close the starting price is to the end price. If I was auctioning something worth 100 bucks (say a 400 dollar bike barely used), and started at 3000, you'd not really jump especially early, due to having to wait so long to get to any realistic price points. If I started at 400 however, you'd likely feel that any second someone could jump for it. So starting high you get anticipation and nervousness pushing people to jump early, and starting low you get FOMO and time pressure pushing people to jump early. So both seem like they would average out, although I do think it would be interesting to experiment with this and see how similar the end points are. Of course you get problems with the super extremes. Start way too high, people will get bored of waiting and reconsider buying at all. Start way too low, and people will jump instantly, resulting in essentially a reaction time test.
I used to do this, but at some point I realised it's much less of a nuisance to just set bid at some fairly large value (relative to existing bids) that I'm actually willing to pay. Let's say I'm bidding on something that's currently going for $5. I could wait till the last second and try and snipe the auction. But I've found that if I say, bit $20, one of two things happens: 1. I immediately get outbid because someone had a much higher bid but the second highest bid was quite low. 2. I either win the auction outright, often for something like $7-8, or someone comes a few days later and drives the price up a little. Sometimes I would get outbid and have to decide if I'm willing to go higher. But often I'd find the others bidding would at best push the price a bit further, but not actually come close to my 'high' bid. Either way it makes it a lot less tedious, and much less likely someone will snipe me last second. (because they find their tiny increments don't get them anywhere. they try maybe 2-5 times then give up, often not pushing the price up much at all in the process unless they were willing to bid some huge amount anyway. - in which case they likely would have outbid me regardless.)
@@KuraIthys why not just put that price in at the last 20 minutes? It would be cheaper if you set an alarm and just waited. And it seems like it wouldn't be much of a hassle (depending on how often you buy things).
My experience with an ascending bid auction showed me that I’m too impulsive. I ended up paying retail price for used items. Thanks for the video. I’ll watch again to learn in addition to listening.
I'm the opposite. I've never go over a preset bid and for that reason I've never bought anything at a live auction. Too many people are like you and pay twice what it is worth. I understand the impulse, it's just something you have to fight.
Very late to the party, but an interesting wrinkle occurs when we consider that the auction doesn’t have to operate in the interest of the seller. I work for an engineering firm that often conducts sealed bid auctions with contractors to identify the lowest price for which a firm is willing to construct our designs or with vendors to determine the lowest price for which they will sell our clients some piece of equipment. The behavior is similar to that discussed in the video, except instead of each bidder having a maximum price they would be willing to pay, they have a minimum price that they would be willing to charge, and each contractor bids as much above that floor as they think they can without exceeding the other bids. It’s interesting to imagine an adjusted English or Dutch auction with the same goals. An Buyer’s English Auction would set a high starting price and ask bidders to go below. A Buyer’s Dutch would start at $0 and go up until someone is willing to provide the goods or services. Fun stuff.
The Vickrey auction is just like a maxbid feature, where you bid a certain amount of money and the auction system automatically applies it every time someone else tries to bid until you get outbid. You can then raise from there if you see that you were outbid, but the overall effect is identical.
Also in the Dutch auction you know if no one has made a bid at any given point. By reaching your a highest acceptable bid in the Dutch auction you know you'll get it if you bid. But in a sealed auction you can't know until it's too late if people were willing to pay more
In the TV show Brain Games, they held an oral auction to sell $20. Only in their version, the highest bid paid their bid and got the $20 and the second highest bid would have to pay what they bid and would get anything. The person who got the $20 paid $40 The second highest bid paid $39 and didn't get anything.
Ironic Dutch Moonshade You're basically describing what's known as a dollar auction where only the highest bidder wins but the top two bidders must pay (the usual prize is $1). It becomes a test of collusion breaking, as as soon as a second bidder enters two rational players will end up bidding each other into very deep debt because whoever is second has an inherent incentive to continue raising their bid.
The dollar auction is the name of the two-player case. The general case is called the "all-pay auction". (en.wikipedia.org/wiki/All-pay_auction). A variation that is mathematically equivalent is the bidding-fee auction, in which each bid only raises the price by a small, fixed amount, but you have to buy the bids. This is what allows certain auction sites to claim they sold a piece of consumer electronics that normally retails for a few hundred dollars for 30 bucks. The fees paid by the auction participants can easily run into the thousands of dollars for an item that nominally sold for only a few tens of dollars.
This reminds me of government contractors bidding on contracts. There is also a version of that where the second lowest bidder gets the contract to avoid extremely unrealistic bids.
The best way to pay the least on an auction on ebay is to search for misspelled items such as playstaion 4 or X Box on. These items don't show up in searches when buyers are searching for them and the lower exposure means less people bid on them, lowering the final price significantly. It artificially (through the ineptitude of the seller) limits the demand for a relatively desirable item.
Dutch auctions were mostly automated, where you saw the price displayed on a giant clock that had one hand running backwards, indicating the dropping price. Nowadays it's all electronic. This type is mostly used for products that will spoil quickly, like flowers and fruit.
Perhaps related to Joe Lamond's comment for sealed bid versus dutch auctions: In a sealed bid auction, there is no serious time pressure, and the bidder has a chance to really rationally analyze what they are willing to pay. In a dutch auction, it is "real time", and many people (me, for example) might doubt that they have accurately valued the item, and might add a bid surcharge, so to speak, to offset that possibility. Or as Joe said, "jump the gun" a little due to their lesser confidence in their quick valuation. I thought this was a great video. Thanks Numberphile - more like this as squaredropper sez - math analysis of economic/game/interaction situations that occur in real life for everyone.
I played a game called "Shop Heroes" that has a very unique auction house for the shampoo type product that was introduced at the start. It makes it so that shampoo type products are optimally priced.
Another unmentioned point is which type of auction(s) are easiest/hardest to cheat? Like having a friend of the auctioneer to submit high bids just to jump the prices up.
An interesting twist is when the bidders are the sellers. For instance, when contractors put in bids to a company or government to do a construction project for them. This is typically in the form of sealed bids, which also have either certain minimum requirements of the bidders, or they include information other than just their price point that are factors in evaluating their ability to do the job to the owner's satisfaction. Contradictory to the stereotype of government projects, it doesn't always go to the lowest bidder.
The way dutch houses are sold in a foreclosure is a double auction; first start with an englisch auction to establish a price, directly folowed by a dutch auction for a final change to bid. The winner of the englisch auction gets a small percentage of the highest bid or the house if there is no higher bid.
I was able to sell a 2 dollar bill for 89 bucks in an auction, so basically you start the action at one penny, then you have a number of people start bidding, but the catch is the first place person pays their bid gets the thing, but the person is second also pays their bid, but they don’t get anything. The first place was 45 bucks for the two dollar bill and the second place was 44 bucks. Woulda been a hefty profit but I decided to be ethical and have them use Monopoly money, but I told them that one of them had more money than the other, in fact they have the same amount
In software engineering, getting a project to do is often kind of an auction, but it usually is kind of who does it for the lowest price, not the highest
The thing with the Dutch Auction is, AFAICS, it results in this: A person bids higher because of exitement -> Other persons bid higher to match him -> All persons who don't succumb to exitement succumb to not winning -> Some people get excited over the high bids -> Price rises, rinse and repeat.
+Mark Neu Other people cannot bid higher in response to the first bidder in a Dutch auction because there is only one bid in a Dutch auction. You must be thinking about an English auction.
In all these cases it’s almost impossible to do away with the inherent bias (e.g. the competitive pressure etc.), the cheating mechanisms, and the price fixing schemes. A fair auction is theoretically possible, but practically improbable. Not to mention that there are too many arbitrary factors and considerations that go into determining the value (monetary, sentimental, or otherwise) of an item by its price. The reserve is the only crude hint you get for what someone is willing to accept for an item. But if you go with the reserve strategy then you’ve essentially bought into someone else’s expectations and valuation scheme. If you want an item bad enough that you’re willing to be subjected to its funky price action in an auction environment, then be prepared to be legally and royally ripped off.
And what about of a combination of English auction and Dutch auction? Starts as a Dutch auction and at the moment someone makes a bid you become an English auction.
Easy to find what items sell for on Ebay, Go to - Ebay search - click on advanced search next to Search - put item in description - click sold listings box - search
It seems to me that in comparing the dutch auction to the sealed bid auction, the dutch has the advantage that when you bid, you know that you are going to be successful in obtaining the item in question, and winning the auction, which has some value in itself. This immediacy is also beneficial in the sense that your commitment is resolved at the point in time when you make the bid, whereas in a sealed bid auction, the funds committed to your bid are essentially frozen for a period of time, depending on when the result of the auction will be made known.
I have a mathematical question: What function would give you how many times x can divide by 2 while still being an integer. So, for example, 8 would be 3 since 8/2=4/2=2/2=1, and you did three iterations. 6 would be one since once you divide, you get an odd number, 3. if you plugged in an odd number, it would always return 0, and every other even number is 1. The series of f(x) where the x's are consecutive evens would be 1,2,1,3,1,2,1,4,1,2,1,3,1,2,1,5,1,2,1,3,1,2,1,4,1,2,1,6,1,2,1,3,1,2,1,4,1,2,1,3,1,2,1,5,1,2,1,3,1,2,1,4,1,2,1,3,1,2,1,7,... I came up with an approximate function by adding random things to it until it looked okay, but I tested it for higher numbers and it got something like 26 in 8192. Either way, the function is abs(floor(abs(sin(c)*(2^((ln (x))/1.5)))-(x mod 2) +1)). It's not that accurate, but its the best I could come up with. I'm wondering if there is possibly a perfect function to appease this.
Another the deciding factor on whether I bid online is whether I have to pay for shipping. While there's less choice in Auctions from my City than further away, often for cheaper items the reduced costs of shipping makes up for it.
How would auction participants behave differently if 1st place has to pay their price, but in addition 2nd place has to pay their price while the item goes to 1st place?
What would you buy? 13:11 1 Bike, reallly fast, kinda rusty (Mostly broken but very shiny) for 500$ 2 Bike, really rusty, kinda fast for 430$ 3 Fast, rusty bike for 425$ 4 Rustiest, fastest bike for 250$
a cool game that reminds me of bidding: 2 people take turns saying higher and higher numbers. whoever has the highest number at the end loses that amount of money, the one with the smaller amount gets that amount
It seems fairly easy from a psychological standpoint to explain why people would bid higher in the Dutch Auction. Because they will bid what they believe to be a fair price point in the sealed auction, they will naturally assume that others will begin bidding at that price point. You might wonder why the sealed would be any different, but consider that when you're doing the sealed auction, you're effectively asking yourself how high you are willing to go yourself. For the Dutch Auction, you are going to assume that others will go about that high just because you already believe it to be a fair price point. Because of this factor, and the uncertainty of the method, people who want an item will be willing to pay more to ensure they receive the item.
4:34 I see a difference. In a sealed-bid auction, you must decide an exact bid amount in any auction you want to enter. But if you enter a Dutch auction, and someone bids before the price has got down to what you'd pay, you don't have to decide exactly what your bid would be. In any case, as you show, Vickrey auctions are fairer for the buyer than either of those types.
You should go back and ask about auctions where the goal is to get the lowest bid, as in, the type of auction for government contracts where they try and find a contractor willing to do the work for the lowest amount.
There's a danger to his eBay strategy: It's possible for an auction to be called, then the winner gets disqualified, then the 2nd place wins retroactively. If you are doing your bids on new auctions too fast, you may get stuck with more than 1 copy.
The problem with optimisation of auction algorithm based solely or mainly on extracted monetary value is that it creates a price bubble on the market. Since information on final prices is typically released after each auction it blows up price expectations for the next auctions, until at some point there will be no one willing to pay prices that high. And this sudden stop in price race may happen even with Dutch auctions - like it did in 1640's with the tulip market. So, an Ideal Auction must be designed in the way that not only allows to make the most out of a buyer's will to pay but prevents inflation of the prices in the long run, for the latter is no good for anyone.
the even bigger advantage of the sealed bid auction is that it gets a higher price when bids are purely rational. Say there are bidders willing to pay up to 2 3 5 9 respectively. The English auction selks at 6 to the person who was prepared if need be to pay 9. The sealed bid sells at the 9. The English auction sells at a higher price when bids are made emotionally. The sense of competition or the sense of "just one more" can lead some people well out of their comfort zone. I maintain that the real reason governments use sealed bids is that it is easy to disqualify a bidder at the end of the auction - this is occasionally deemed necessary for political reasons - and it is straightforward to know who comes next and at what price
So I'm wondering about the Dutch auction, do they use it because of speed effectiveness? Because I know they only get a second or two to look at a batch of flowers to bid before the next batch rolls by.
Dutch auctions can be very quickly. There will never be more than 1 bid, regardless of the number of potential buyers. Auctions at the Dutch flower market *don't* involve an oral component (unlike the video claims). They have a large clock (one hand) which starts at the top position, and as soon as the auction starts, it runs clockwise, until a buyer pushes a button. That stops the clock, and where it will stop is the price which will be paid. Auctions take seconds this way.
Flowers are (were?) sold in large batches sorted by variety (colour) and length on trolleys with buckets and the buyer decides how many of the buckets they are bidding on. If the first buyer does not buy all the buckets on the trolley the clock starts to decrease again until all buckets are sold.
They sell the batch as a whole. It would slow down the process if someone would bid, and then say "I only want 10% of the batch". But each vendor will split his goods in a number of batches that are auctioned. I expect this is what you meant.
Think our interviewer might be confusing the 'price' an item sold at for the 'value' of that item in the Mona Lisa/shampoo question. Value is 100% subjective, and the price paid is always something less than that value. The value of shampoo is not constant or known; manufacturers and retailers select safe prices sufficiently below average estimated values (calculated by the existing supply and demand estimates in a given target area), and base their retail price on how many items their profit model requires them to move in order to maximize efficiency of their production capacity.
2017: "If there's a storm and people buy out all the shampoo, an auction might make sense."
2020: "Coronavirus says we need an auction on toilet paper, do I hear $500 a roll?"
Also masks LOL
Happened again in New Mexico in light of second lockdown
"The Dutch auction sometimes called the Tulip Auction is well known for being used in the Dutch Tulip Auctions"
Mind = BLOWN
He missed the main benefit of a Dutch auction. You usually sell multiple lots simultaneously by Dutch auction. E.g.:
You have 20 similar apple trees to sell.
Price drops to £15 and someone bids. They have an option on all 20 at £15 each.
If they take less than 20 the auction resumes. The next highest bid has an option on all remaining trees.
This maximises the sale price of sales containing multiple similar lots without selling each lot in small parcels.
hmm .. not really. You could implement that in an English auction, too. The main benefit is speed. Each lot is done in seconds. But the advantage plays out only on standardized items. The other end are sealed auctions: unique items, and you get months to do your bid.
Doesn't seem as relevant to the aspect of auctions this video discusses.
@@tomasbickel58 Not really though, with the english auction, every time there is a sale you need to play the auction game again and find the next lowest price. With the dutch you just continue the natural process.
Much less confusing for the bidders and wastes less time. Your not forcing everyone to keep bidding again and again on the same items.
Mika Sargent during the English auction, we know everyone’s last bid, couldn’t we sell remaining items to the second best bid and so on?
@@McRoos .. if I were the seller, I wouldn't participate, would I?
My secret strategy for eBay auctions? Look for auctions where the seller has misspelled what he's selling. It wont get as many bids and will likely sell for less.
Paul Tomblin lol sounds pretty smart
Your secret is out!
You've been watching Big Clive too?
Or the item is in the wrong category.
I wish Ebay would add a time buffer to the bids, so that as long as people are still bidding, bids will be accepted, something like 10 seconds or so. It might extend the bidding a minute or two, but that's how it works in a live auction. (at least that's how it was when I Iast got something off Ebay)
We ran a Vickrey auction with estate agents (realtors) to sell our house, we asked the agents to value the house and we would go with the middle value. We told them all this and the fact that there were three agents in the running. The aim was to stop them over inflating the house price to try to get our custom.
Two just submitted their valuation but one had a nervous breakdown on the spot in our kitchen, unable to work out how to game the system to ensure our custom. It was rather funny.
I was about to say that wasn't a real vickery auction, but then I realized the second highest price is the middle one.
@@mujtabaalam5907 It's not a real vickrey auction because the realtors weren't buying the house, they were bidding for a job of selling it.
In a vickrey auction a rational bidder would bid the true value of the object as they see it. I don't think there is any set winning strategy for this estate agent auction.
What are the odds of a bloke called Vickrey discovering the Vickrey auction
;)
50%. Either he would have discovered it or he wouldn't have.
@@shaileshrana7165 Vickrey's Cat
1:0.9
He was so proud of it, he decided to name himself after the auction
This is gonna be CGP Grey's favorite video
Why is that? What have I missed lol!
Jonah Lee no way. He can't make a video on it now
Jonah Lee But why ?
mursie100 he mentioned on his podcast that he's (very) interested in auction optimisation
+
It appears to me that the reason people bid higher in dutch auctions compared to sealed bid auctions is because they can physically see everyone around them who could bid before them, so they have a kind of 'jump the gun' mindset, whereas in a sealed bid auction people just think this is how much I would be prepared to pay, let's see if I get it.
The internet is a wonderful thing.... you can bid on a Dutch auction from your local coffeeshop with a laptop. In fact, this is already possible in the Dutch flower auctions; they still have the physical auction rooms (38 rooms, in four different locations in the country), but you can participate remotely.
I've been attending all types of auctions and selling on eBay for years. I can tell you from experience that live auctions will generally bring more than other types of auction, including silent auctions in which no one can see the other bids. That's not only because of the psychology that compels people to compete, but also because most people are somewhat flexible on the price they are willing to pay. Maybe they want to pay $10, but if given the option they will consider raising it to $12. The person in the video alluded to this when he mentioned that seeing your competitor bid justifies the bid amount and may compel you to increase your bid.
Well think about this. Someone will go into an auction and tell themselves 'I will only go up to this price', but they will always over shoot that a bit if they think its only slightly more for a winning bid.
Joe Lamond I'd be interested if this difference persists in real life professional traders, or if it's just (as so often) an insight from one-shot behavioral economics experiments. The latter doesn't translate well into anything practical.
I think it has a lot to do with not wanting to "lose" the item. They would be really upset if it was just $10 more than they were planning to pay and therefore decide to not allow the risk of losing the item.
Numberphile is the best math channel on youtube
Crazy Contraptions s
3Blue1Brown and Mathologer are super awesome too though
Reeta Singh yeah
Reeta Singh
+standupmaths
+Tipping Point Math
+singingbanana
+Numberphile 2
You might also like GoldPlatedGoof
That laser kiwi flag shout-out 😊
The true flag of our country.
Give the people what they want
In Ontario, Canada our electricity market uses an interesting bidding process. Every day is broken into 2 (or 5?) minute slots and the total electricity demand is predicted for each slot. Electricity generators bid on a chunk of each time slot based on how much generation capacity they have and what price they are willing to be paid. The time slots are filled with the lowest bidders first, then the next highest etc proportional to their generating capacity.
Once the slot is full of generation capacity, EVERYONE gets paid the highest valid bid for their portion. Anyone who bid higher doesn't get to sell power. The result is that the large base-load generators bid at negative dollars to ensure their power is used (they can't turn on and off very quickly), and the rest of the slot is filled by the smaller players. In the end, everyone gets paid the same if they made it into the stack. There is an inherent incentive to bid low to stay in the stack, but if everyone bids low or negative they all lose money (some more than others). In theory the price tends toward the fairest price.
The twist is that the generators that use solar and wind get paid an inflated fixed contract price regardless of the final bid, and the difference is made up by a Global Adjustment factor. This makes the market dysfunctional and our electricity prices insanely high.
Damn, that sounds like it was so well engineered, and then people had to &@%# it all up.
Why does it make the market dysfunctional? The system still works as intended, only that some producers get to sell first and to a fixed price. For the remaining gap the bidding procedure is still in place
@@Lukas4182 it's dysfunctional because it's a fake market...prices get set through a "competitive" market, then consumers are saddled with the difference between market price and contract price anyway. Global Adjustment negates any price advantage of an open market. No one actually gets paid what they bid, from the nuclear operators who bid negative prices, to the wind operators that bid less than their contract price.
@@thebigmacd consumers pay the contract price, but only for the renewable part of the energy, right? The rest should still be determined by the market just like you described.. And there definitely is a market left, only that it's way more interesting due to fluctuating renewable production. So the market mechanism now is more important then ever
@@thebigmacd it does lead to the effect of occasional negative energy prices though, when the nuclear plants "win" with their negative bidding in times of low demand. But that's their own problem of not being flexible enough.
Man, this guy sure can talk. I could listen to him talk all day, he has a very nice, but authoritative, voice, that really makes you want to listen to what he says
WHY DO I COME TO THIS CHANNEL AT 3AM?
ProTayToe Gamer TO LEARN
because you already feel guilty that you are not sleeping (you should be and you know it), so you subconsciously compensate it by at least doing something you consider useful
Filip Široký
Tru dat.
CAUSE ALL BRADYS VIDEOS ARE AMAZING...AND HE HAS SOMETHING REALLY RARE NOWADAYS....HE IS A WONDERFUL INTERVIEWER....HE LETS PEOPLE TALK AND TALK WITHOUT INTERRUPTING THEM AND ALL HIS QUESTIONS ARE REALLY SPOT ON....!!!
It would have beem one in the afternoon where I live.
I work in a liquor store and I have been trying to convince my boss to use a slo-mo dutch auction to allocate our Pappy Van Winkle allotment.
My idea was to place the bottles in a case with an astronomical price on them, and then knock 5 dollars off the price each day until the bottles sell. Auctioning Liquor is illegal in my state but discounting it is not.
The dutch auction I learned was used when you're trying to get the most money for a fixed amount of product and was used to clear that product from the sellers facility. That the top bidder does NOT WANT all the items just some; so bidders bids are remembered, so it runs for a while collecting bids on what people are willing to pay for the quantity they want so the high bidder gets all the units they want and the next highest bidder can get the price THEY bid for the quantity they wanted.
Paul Milgrom and Robert Wilson have won the 2020 Nobel Economics Prize for their work on auction theory
This is by far the best video on auction theory on this website.
We don't "know" the price of shampoo, we just use a different price discovery mechanism - supply and demand
More from Preston in the future please. Economics is very interesting.
13:10 "Ebay doesn't make it easy to know how much an item sells for".
Ebay actually has a search filter for recently concluded auctions, it shows at least two weeks of history, maybe more.
I've heard about a different type of auction called an Amsterdam auction. It consists of two rounds. First, you have a regular English auction. Once the top price has been reached, the second round begins, where the auctioneer does a "dutch auction" counting down. If someone jumps in on the Dutch auction part, they then buy the house for the combined price of the two rounds, and the winner of the first round is paid a premium. If the second round price reaches zero, the person who won the first round gets the house for that price. Puts an interesting spin on things.
I'd love to hear about the psychology and math behind a 'penny' auction, which acts like an ascending auction, except where a person has to pay a fee or pay their bid, no matter if they win or lose the item.
11:04 Nice New Zeland flag Brady. Boycotting the flag referendum?
Why boycotting? I'm sure if they had let the internet decide, laser kiwi would now be the official flag of New Zealand. I'm sorry, of Zealand McZeaface.
It may not be the official flag of NZ, but it's the official flag in our hearts.
SpySappingMyKeyboard You mean the unofficial official flag?
Danochy That would make the present flag official unofficial.
Another (non-mathematical) piece of advice for eBay buyers: If at first you don't succeed, try, try again.
Once I REALLY wanted to buy a rare Rolling Stones album, so I kept on bidding every time I saw it for sale at a price I was willing to pay (which was far lower than it actually sold for). After several efforts, it seemed, everyone else who wanted it already bought a copy, so I was finally able to get it dirt-cheap!
A variation of the dutch auction is often used in the fixed income markets, when bonds are initially auctioned off in the primary market. In this type of auction, bids are in fact sealed. But in this type of auction, either by choice or by external factors, no individual bidder will be bidding for a large enough amount so as to win the entire offering. The method is therefore to count down from the highest bid until the auctioneer sees that the entire offering has been covered by bids. The price that secured the entire offering was covered by bids then becomes the price that all winning bidders pay. This creates some interesting game theoretical choices by bidders, usually that bidders will in fact submit multiple bids in a so-called "ladder", to ensure that they will most likely get at least some of the issue, but don't bid the market beyond where it would otherwise clear.
Just read this in a book, 'Thinking Fast And Slow'. The reason people bid higher in the dutch auction is called 'anchoring'. Its a cognitive bias where a suggestion influences ones decision or evaluation. The 'anchor' is the first bid. Since its very high, people tend to estimate the value higher than it is. Its proven to even work with values that hold no information about the accual thing that is presented. Thr book discribes an experiment where people spin a rigged wheel that goes from 0 to 100 but since its rigged, can only land on 10 or 65, wich they dont know. People had to spin that wheel and then estimate some value. Dont know what it was, maybe the price of something, maybe a temperature somewhere. Thats not important. The thing is, even though the value of the wheel had nothing to do with what was asked, people that spun a 10 on average estimated the value to be about 20 and people that spun 65 on average estimated the value to be above 40.
Some random fact for all the psychology lovers here :)
Very good video! I'd love to see more economics stuff in future
If you get another chance to talk with him, I'd be curious about the effects of an auction in which the second highest bidder wins with the second highest bid price. I think that this is sometimes used in contracting work (in this case, the second lowest bidder), but I'm not 100% sure on that.
EDIT: As opposed to the HIGHEST bidder winning with the second highest bidder's price.
+
Each buyer registers twice, n and n+0.01 dollars
Nothing changes
If he gets another chance, I'd like to know what information these different bids give in relation to Hayek's ideas on markets.
no name they could simply make it that you can only have one bid
Joseph Walker
Then you get your friend to register with you. You bet n, he bets 0.9n, and you pay him n if he wins.
Back at the spiritual home of Numberphile!
MoneyPhile
This could be a cool channel for investors.. Cryptocurrencies, forex, shares.. Etc
Who is here after 2020 Nobel Prize in Economics?
How to win every second price auction: bid $99999999999999999999999
Unless another one had the same idea and bid 1$ less than you
~5:30 -- he says that people bid earlier in Dutch auction. My question:
how is this affected by the starting value? If I hold a Dutch auction for the same thing with two groups, and one time I start at 10000 and one time I start with, say, 3000. Will I reach the same price, or will the 10000 group buy with higher price? (maybe some psychology will kick in, like, when I drop below 5000, people may start thinking that I am already past the half of the initial value and be more susceptible for buying...)
With the sealed envelope, everybody makes up their own assessment of the price, but with Dutch, you are affected by the initial price, am I right?
panda4247 Do you know about the Anchor Effect discovered by Daniel Kahneman? :)
It says, that people are e.g. willing to donate more to chartity if they get asked to donate a higher amount at first (e.g. 1000$? No. 100$? Yes, in contrast to 10$? Yes.)
Jonathan - no, I haven't heard that, at least not in the charity context. But yeah, it would be very similar thing.
Also, we have some shops in my country with very ...unethical... practices. Let's say they sell margarine (or something else that you buy regularly, but not daily, you buy several boxes at once and it can last for month...) for, let's say 1.20€. Then, one day, a huge discount sign appears near it saying "(strikethrough not working here) -1.45€- NEW PRICE !! 1,30€"
And people will buy it. And then, when the discount campaign is over, it goes back to 1.20 as if nothing happened. Actually, I haven't seen this in a while, but maybe 10 years ago, one huge store chain was famous for it.
So... yeah, when some initial value is set high enough, people tend to overvalue things, or they are willing to pay more than they would without that initial value being seen.
panda4247 Yess, exactly what I'm saying.
It depends how close the starting price is to the end price. If I was auctioning something worth 100 bucks (say a 400 dollar bike barely used), and started at 3000, you'd not really jump especially early, due to having to wait so long to get to any realistic price points. If I started at 400 however, you'd likely feel that any second someone could jump for it.
So starting high you get anticipation and nervousness pushing people to jump early, and starting low you get FOMO and time pressure pushing people to jump early. So both seem like they would average out, although I do think it would be interesting to experiment with this and see how similar the end points are. Of course you get problems with the super extremes. Start way too high, people will get bored of waiting and reconsider buying at all. Start way too low, and people will jump instantly, resulting in essentially a reaction time test.
Ok.. I actually learned a lot about auctions. I didn't even realize there are so many different ways to hold an auction. Quite interesting 😀
Most people don't raise their eBay bids until minutes or seconds before the bidding ends. they do this to prevent the price from rising too early.
I used to do this, but at some point I realised it's much less of a nuisance to just set bid at some fairly large value (relative to existing bids) that I'm actually willing to pay.
Let's say I'm bidding on something that's currently going for $5. I could wait till the last second and try and snipe the auction.
But I've found that if I say, bit $20, one of two things happens:
1. I immediately get outbid because someone had a much higher bid but the second highest bid was quite low.
2. I either win the auction outright, often for something like $7-8, or someone comes a few days later and drives the price up a little. Sometimes I would get outbid and have to decide if I'm willing to go higher. But often I'd find the others bidding would at best push the price a bit further, but not actually come close to my 'high' bid.
Either way it makes it a lot less tedious, and much less likely someone will snipe me last second. (because they find their tiny increments don't get them anywhere. they try maybe 2-5 times then give up, often not pushing the price up much at all in the process unless they were willing to bid some huge amount anyway. - in which case they likely would have outbid me regardless.)
@@KuraIthys why not just put that price in at the last 20 minutes? It would be cheaper if you set an alarm and just waited. And it seems like it wouldn't be much of a hassle (depending on how often you buy things).
My experience with an ascending bid auction showed me that I’m too impulsive. I ended up paying retail price for used items. Thanks for the video. I’ll watch again to learn in addition to listening.
I'm the opposite. I've never go over a preset bid and for that reason I've never bought anything at a live auction. Too many people are like you and pay twice what it is worth. I understand the impulse, it's just something you have to fight.
Another great guest. This guy is a gem, just like cliff
A shortage of shampoo? Well, not quite, but a similar problem just happened...
I've never really given much thought to auctions, but McAfee kept me engaged for the entire video. Interesting stuff!
This is the new monopoly.
Very late to the party, but an interesting wrinkle occurs when we consider that the auction doesn’t have to operate in the interest of the seller. I work for an engineering firm that often conducts sealed bid auctions with contractors to identify the lowest price for which a firm is willing to construct our designs or with vendors to determine the lowest price for which they will sell our clients some piece of equipment. The behavior is similar to that discussed in the video, except instead of each bidder having a maximum price they would be willing to pay, they have a minimum price that they would be willing to charge, and each contractor bids as much above that floor as they think they can without exceeding the other bids. It’s interesting to imagine an adjusted English or Dutch auction with the same goals. An Buyer’s English Auction would set a high starting price and ask bidders to go below. A Buyer’s Dutch would start at $0 and go up until someone is willing to provide the goods or services. Fun stuff.
The Vickrey auction is just like a maxbid feature, where you bid a certain amount of money and the auction system automatically applies it every time someone else tries to bid until you get outbid. You can then raise from there if you see that you were outbid, but the overall effect is identical.
What a cute little gallow knot in the background for the Halloween ambiance
duch auction or sealed envelope also differ in that if the dutch starts lower than a seal would have you have a different price paid
Barnesrino Kripperino but they start at very very high prices, that nobody would actually want to pay for the item..
Also in the Dutch auction you know if no one has made a bid at any given point. By reaching your a highest acceptable bid in the Dutch auction you know you'll get it if you bid. But in a sealed auction you can't know until it's too late if people were willing to pay more
You can't know what others were willing to pay before you lose in the Dutch, either. When they make that bid, they win, and you've lost the chance.
It's exactly the same; you can't know until it's too late if people were willing to pay more in a dutch auction.
In the TV show Brain Games, they held an oral auction to sell $20. Only in their version, the highest bid paid their bid and got the $20 and the second highest bid would have to pay what they bid and would get anything.
The person who got the $20 paid $40
The second highest bid paid $39 and didn't get anything.
Ironic Dutch Moonshade You're basically describing what's known as a dollar auction where only the highest bidder wins but the top two bidders must pay (the usual prize is $1). It becomes a test of collusion breaking, as as soon as a second bidder enters two rational players will end up bidding each other into very deep debt because whoever is second has an inherent incentive to continue raising their bid.
megarockman Thank you providing that info. I didn't know it was actually a thing
The dollar auction is the name of the two-player case. The general case is called the "all-pay auction". (en.wikipedia.org/wiki/All-pay_auction). A variation that is mathematically equivalent is the bidding-fee auction, in which each bid only raises the price by a small, fixed amount, but you have to buy the bids. This is what allows certain auction sites to claim they sold a piece of consumer electronics that normally retails for a few hundred dollars for 30 bucks. The fees paid by the auction participants can easily run into the thousands of dollars for an item that nominally sold for only a few tens of dollars.
This reminds me of government contractors bidding on contracts. There is also a version of that where the second lowest bidder gets the contract to avoid extremely unrealistic bids.
YES!!!! More Economics!
The best way to pay the least on an auction on ebay is to search for misspelled items such as playstaion 4 or X Box on. These items don't show up in searches when buyers are searching for them and the lower exposure means less people bid on them, lowering the final price significantly. It artificially (through the ineptitude of the seller) limits the demand for a relatively desirable item.
@7:40 why did he mention Bing, who uses Bing?
*Reads summary*
Oh, he works at Microsoft...
Learned this in Managerial Economics... the logic is simple but maths behind these are pretty mind-boggling.
Feels like a throwback to Industrial Organisation course. I wish this video was around back then!
Dutch auctions were mostly automated, where you saw the price displayed on a giant clock that had one hand running backwards, indicating the dropping price. Nowadays it's all electronic. This type is mostly used for products that will spoil quickly, like flowers and fruit.
the spiritual home of Numberphile!
Perhaps related to Joe Lamond's comment for sealed bid versus dutch auctions: In a sealed bid auction, there is no serious time pressure, and the bidder has a chance to really rationally analyze what they are willing to pay. In a dutch auction, it is "real time", and many people (me, for example) might doubt that they have accurately valued the item, and might add a bid surcharge, so to speak, to offset that possibility. Or as Joe said, "jump the gun" a little due to their lesser confidence in their quick valuation.
I thought this was a great video. Thanks Numberphile - more like this as squaredropper sez - math analysis of economic/game/interaction situations that occur in real life for everyone.
I played a game called "Shop Heroes" that has a very unique auction house for the shampoo type product that was introduced at the start. It makes it so that shampoo type products are optimally priced.
My classmate... Great Job Preston!
Another unmentioned point is which type of auction(s) are easiest/hardest to cheat? Like having a friend of the auctioneer to submit high bids just to jump the prices up.
Funny how this comes up as I'm watching Dickinson's Real Deal
The closest this channel has ever been to clickbait and it still isn’t clickbait
Omfg we get Econ videos on Numberphile now??! I'm in heaven
An interesting twist is when the bidders are the sellers. For instance, when contractors put in bids to a company or government to do a construction project for them. This is typically in the form of sealed bids, which also have either certain minimum requirements of the bidders, or they include information other than just their price point that are factors in evaluating their ability to do the job to the owner's satisfaction. Contradictory to the stereotype of government projects, it doesn't always go to the lowest bidder.
I'll be keeping all of this in mind for my next game of monopoly.
The way dutch houses are sold in a foreclosure is a double auction; first start with an englisch auction to establish a price, directly folowed by a dutch auction for a final change to bid. The winner of the englisch auction gets a small percentage of the highest bid or the house if there is no higher bid.
I was able to sell a 2 dollar bill for 89 bucks in an auction, so basically you start the action at one penny, then you have a number of people start bidding, but the catch is the first place person pays their bid gets the thing, but the person is second also pays their bid, but they don’t get anything. The first place was 45 bucks for the two dollar bill and the second place was 44 bucks. Woulda been a hefty profit but I decided to be ethical and have them use Monopoly money, but I told them that one of them had more money than the other, in fact they have the same amount
I so much love these animations
In software engineering, getting a project to do is often kind of an auction, but it usually is kind of who does it for the lowest price, not the highest
The thing with the Dutch Auction is, AFAICS, it results in this: A person bids higher because of exitement -> Other persons bid higher to match him -> All persons who don't succumb to exitement succumb to not winning -> Some people get excited over the high bids -> Price rises, rinse and repeat.
+Mark Neu Other people cannot bid higher in response to the first bidder in a Dutch auction because there is only one bid in a Dutch auction. You must be thinking about an English auction.
No, I'm talking about dutch auctions in general, beginning with the first dutch auction to convene.
In all these cases it’s almost impossible to do away with the inherent bias (e.g. the competitive pressure etc.), the cheating mechanisms, and the price fixing schemes. A fair auction is theoretically possible, but practically improbable. Not to mention that there are too many arbitrary factors and considerations that go into determining the value (monetary, sentimental, or otherwise) of an item by its price. The reserve is the only crude hint you get for what someone is willing to accept for an item. But if you go with the reserve strategy then you’ve essentially bought into someone else’s expectations and valuation scheme. If you want an item bad enough that you’re willing to be subjected to its funky price action in an auction environment, then be prepared to be legally and royally ripped off.
And what about of a combination of English auction and Dutch auction?
Starts as a Dutch auction and at the moment someone makes a bid you become an English auction.
Brady, please do more videos with this guy!
Easy to find what items sell for on Ebay,
Go to - Ebay search - click on advanced search next to Search - put item in description - click sold listings box - search
judge animation is killer
Loving this intersection of mathematics and economics.
My strategy for ebay auctions?
Don't bid on auctions full of bots, i.e. don't bid on ebay
Interesting new topic, very cool video!
It seems to me that in comparing the dutch auction to the sealed bid auction, the dutch has the advantage that when you bid, you know that you are going to be successful in obtaining the item in question, and winning the auction, which has some value in itself. This immediacy is also beneficial in the sense that your commitment is resolved at the point in time when you make the bid, whereas in a sealed bid auction, the funds committed to your bid are essentially frozen for a period of time, depending on when the result of the auction will be made known.
I have a mathematical question: What function would give you how many times x can divide by 2 while still being an integer. So, for example, 8 would be 3 since 8/2=4/2=2/2=1, and you did three iterations. 6 would be one since once you divide, you get an odd number, 3. if you plugged in an odd number, it would always return 0, and every other even number is 1. The series of f(x) where the x's are consecutive evens would be 1,2,1,3,1,2,1,4,1,2,1,3,1,2,1,5,1,2,1,3,1,2,1,4,1,2,1,6,1,2,1,3,1,2,1,4,1,2,1,3,1,2,1,5,1,2,1,3,1,2,1,4,1,2,1,3,1,2,1,7,...
I came up with an approximate function by adding random things to it until it looked okay, but I tested it for higher numbers and it got something like 26 in 8192. Either way, the function is abs(floor(abs(sin(c)*(2^((ln (x))/1.5)))-(x mod 2) +1)).
It's not that accurate, but its the best I could come up with.
I'm wondering if there is possibly a perfect function to appease this.
Great vid!
Another the deciding factor on whether I bid online is whether I have to pay for shipping. While there's less choice in Auctions from my City than further away, often for cheaper items the reduced costs of shipping makes up for it.
Great video, brings me back to my MSc days!
How would auction participants behave differently if 1st place has to pay their price, but in addition 2nd place has to pay their price while the item goes to 1st place?
What would you buy? 13:11
1 Bike, reallly fast, kinda rusty (Mostly broken but very shiny) for 500$
2 Bike, really rusty, kinda fast for 430$
3 Fast, rusty bike for 425$
4 Rustiest, fastest bike for 250$
If this 'economist at Microsoft' business doesn't work out, I bet Preston McAfee could be a great Jeff Goldblum impersonator.
a cool game that reminds me of bidding: 2 people take turns saying higher and higher numbers. whoever has the highest number at the end loses that amount of money, the one with the smaller amount gets that amount
Why would you ever say a higher number then?
Very interesting video. Thank you, Brady. Thank you, Admiral Hackett from Mass Effect.
It seems fairly easy from a psychological standpoint to explain why people would bid higher in the Dutch Auction. Because they will bid what they believe to be a fair price point in the sealed auction, they will naturally assume that others will begin bidding at that price point.
You might wonder why the sealed would be any different, but consider that when you're doing the sealed auction, you're effectively asking yourself how high you are willing to go yourself. For the Dutch Auction, you are going to assume that others will go about that high just because you already believe it to be a fair price point. Because of this factor, and the uncertainty of the method, people who want an item will be willing to pay more to ensure they receive the item.
4:34 I see a difference. In a sealed-bid auction, you must decide an exact bid amount in any auction you want to enter. But if you enter a Dutch auction, and someone bids before the price has got down to what you'd pay, you don't have to decide exactly what your bid would be. In any case, as you show, Vickrey auctions are fairer for the buyer than either of those types.
"I wonder what an auction is...?"
-No one ever. Literally no one, couldn't find anyone.
Wonderfully articulate fellow.
You should go back and ask about auctions where the goal is to get the lowest bid, as in, the type of auction for government contracts where they try and find a contractor willing to do the work for the lowest amount.
There's a danger to his eBay strategy: It's possible for an auction to be called, then the winner gets disqualified, then the 2nd place wins retroactively. If you are doing your bids on new auctions too fast, you may get stuck with more than 1 copy.
At least here in the USA, on Ebay you are able to sort auctions based on Sold items and view that item's price history.
Oooh, yes, more Ecomomicsphile, please :)
Sniping on e-bay explained many years after the pros said how to. 1. Use a bot to snipe. 2. Determine current market price via sold listings.
The problem with optimisation of auction algorithm based solely or mainly on extracted monetary value is that it creates a price bubble on the market. Since information on final prices is typically released after each auction it blows up price expectations for the next auctions, until at some point there will be no one willing to pay prices that high. And this sudden stop in price race may happen even with Dutch auctions - like it did in 1640's with the tulip market. So, an Ideal Auction must be designed in the way that not only allows to make the most out of a buyer's will to pay but prevents inflation of the prices in the long run, for the latter is no good for anyone.
Is this the guy that made people pay for Minesweeper or watch an ad?
the even bigger advantage of the sealed bid auction is that it gets a higher price when bids are purely rational.
Say there are bidders willing to pay up to 2 3 5 9 respectively. The English auction selks at 6 to the person who was prepared if need be to pay 9. The sealed bid sells at the 9.
The English auction sells at a higher price when bids are made emotionally. The sense of competition or the sense of "just one more" can lead some people well out of their comfort zone.
I maintain that the real reason governments use sealed bids is that it is easy to disqualify a bidder at the end of the auction - this is occasionally deemed necessary for political reasons - and it is straightforward to know who comes next and at what price
True River no, the person who is willing to pay 9 would just put 6 and win.
So I'm wondering about the Dutch auction, do they use it because of speed effectiveness? Because I know they only get a second or two to look at a batch of flowers to bid before the next batch rolls by.
Dutch auctions can be very quickly. There will never be more than 1 bid, regardless of the number of potential buyers. Auctions at the Dutch flower market *don't* involve an oral component (unlike the video claims). They have a large clock (one hand) which starts at the top position, and as soon as the auction starts, it runs clockwise, until a buyer pushes a button. That stops the clock, and where it will stop is the price which will be paid. Auctions take seconds this way.
Abi Gail it runs counter clockwise, since prices are decreasing.
Flowers are (were?) sold in large batches sorted by variety (colour) and length on trolleys with buckets and the buyer decides how many of the buckets they are bidding on. If the first buyer does not buy all the buckets on the trolley the clock starts to decrease again until all buckets are sold.
They sell the batch as a whole. It would slow down the process if someone would bid, and then say "I only want 10% of the batch". But each vendor will split his goods in a number of batches that are auctioned. I expect this is what you meant.
Think our interviewer might be confusing the 'price' an item sold at for the 'value' of that item in the Mona Lisa/shampoo question. Value is 100% subjective, and the price paid is always something less than that value. The value of shampoo is not constant or known; manufacturers and retailers select safe prices sufficiently below average estimated values (calculated by the existing supply and demand estimates in a given target area), and base their retail price on how many items their profit model requires them to move in order to maximize efficiency of their production capacity.
Is there going to be a video on the second numberphile channel about how penny auction websites such as madbid, distort bidding psychology?