Winning Bid: How Auction Theory Took the Nobel Memorial Prize in Economics (ft.com) 18
Tim Harford, writing for Financial Times: A well-designed auction forces bidders to reveal the truth about their own estimate of the prize's value. At the same time, the auction shares that information with the other bidders. And it sets the price accordingly. It is quite a trick. But, in practice, it is a difficult trick to get right. In the 1990s, the US Federal government turned to auction theorists -- Milgrom and Wilson prominent among them -- for advice on auctioning radio-spectrum rights. "The theory that we had in place had only a little bit to do with the problems that they actually faced," Milgrom recalled in an interview in 2007. "But the proposals that were being made by the government were proposals that we were perfectly capable of analysing the flaws in and improving."
The basic challenge with radio-spectrum auctions is that many prizes are on offer, and bidders desire only certain combinations. A TV company might want the right to use Band A, or Band B, but not both. Or the right to broadcast in the east of England, but only if they also had the right to broadcast in the west. Such combinatorial auctions are formidably challenging to design, but Milgrom and Wilson got to work. Joshua Gans, a former student of Milgrom's who is now a professor at the University of Toronto, praises both men for their practicality. Their theoretical work is impressive, he said, "but they realised that when the world got too complex, they shouldn't adhere to proving strict theorems."
The basic challenge with radio-spectrum auctions is that many prizes are on offer, and bidders desire only certain combinations. A TV company might want the right to use Band A, or Band B, but not both. Or the right to broadcast in the east of England, but only if they also had the right to broadcast in the west. Such combinatorial auctions are formidably challenging to design, but Milgrom and Wilson got to work. Joshua Gans, a former student of Milgrom's who is now a professor at the University of Toronto, praises both men for their practicality. Their theoretical work is impressive, he said, "but they realised that when the world got too complex, they shouldn't adhere to proving strict theorems."
Re: (Score:3)
Except, of course, the Economics prize is officially the "Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel" and not actually a Nobel Prize, like Literature or Chemistry.
Because economists are basically dishonest they have had to piggyback on the reputation of the real Nobel Prizes to get so
Re: (Score:2, Redundant)
Hope /. is getting paid for this (Score:5, Funny)
If I have to pay to read the article, is Slashdot running an ad?
This is my domain of expertise. Too bad I can't comment.
In india they asked this man for advice (Score:2)
the myth of rationality in economics (Score:3, Interesting)
perhaps true in the right circumstances.
unfortunately, most auctions are designed to get buyers to pay more than their estimate by framing the purchase as a competition.
and one of the minimal requirements of those circumstances is that the buyer(s) think of it as a boring purchase, not as an exciting competition where something can be won or lost.
another requirement for those circumstances is that the bids are sealed in order to avoid sparking an irrational competition.
the sealed bids should have minimum bid value, maximum bid value, and increment value - the buyer obviously wants to pay as little as possible but is willing to pay as much as their maximum bid but no more.
of course, the auction should also have a starting bid specified.
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unfortunately, most auctions are designed to get buyers to pay more than their estimate by framing the purchase as a competition.
Much like IPOs these days.
And yet they result in prices lower than Craigslis (Score:5, Informative)
I see you have an opinion, and perhaps a visceral reaction, to auctions. What happened? What kind of auction did you go to?
In my experience auctions have always brought lower prices than any other common way of selling things. For example typically cars auction for about half of the Blue Book price. Bank who repo cars and new-dealers taking 5 year old trade ins aren't in the business of selling those cars, so they dump them at auction for less than they'd get selling them one at a time on Craigslist. That's why used car dealers normally buy cars at auction - because they can sell them for twice the auction price.
Which, btw, is one reason you should never let a car or house get repoed - you'll only get credit for the auction price and you'll still owe the difference. Better to sell it normally and finance any amount that you're upside down.
eBay, the most popular auction site - also very often the price on an item.
Similar for real estate auctions, most properties go for less than they would sell for with a normal listing.
What auctions DO offer is quick, nearly guaranteed sale and another party (such as the person whose car got repossessed) can't say the banker sold it to his brother for an unfairly low price. The banker sold it to whoever was willing to pay the highest price during the 6 minutes that the car on was on the auction block.
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Often the winner pays the next highest bidder's price, not their actual bid. This increases the chance the item will be valued properly by the people bidding on it. Let's say you want to bid $5000 on an item. You really want the item, but you also don't want to pay too much. You could bid, say $5000 and h
"A well-designed auction..." (Score:2)
from whose perspective?
Nobel Memorial Prize in Economics Does Not Exist (Score:2)
Not a Nobel Prize (Score:4, Funny)
A bunch of bankers got together and decided that they and their pals should be able to have Nobel prizes just like people who do real work, so they made one up.
As we all know, the economy has boomed since this great bit of work was done and nothing has gone wrong on the economic front since the 1990s.
Nobel Memorial Prize in Economics (Score:2)
How Auction Theory Took the Nobel Memorial Prize in Economics
Note that "the Nobel Memorial Prize in Economics" has nothing to do
with the "Nobel Prizes" established by Alfred Nobel.
Contrary to popular belief, there is no such thing as a "Nobel Laureate in Economics".