An excellent 7-page article on Auctions and Game Theory; we came in on page three, thanks to the oddities of Google. This page was a bit weird, suggesting things that are patently untrue:But Vickrey found that no matter what the number of bidders, the shaded bids mean the seller takes home only as much money as in a second-price auction. It's fairly evident to me that Vickrey 'found' this in terms of all bidders being purely logical beings who cast the bid that optimises the auction result - that they get the item as cheaply as they can, or don't get it if it would be more expensive than they're willing to pay. If you've ever seen the progress of an ebay auction, or watched a live auction with your brain switched on, you'll well know that this isn't what happens. The next page of the article, thankfully, does go into the truth of the matter a little better (that English style auctions generally do best for the seller, for example).
Interesting to consider, though, in addition to the implications for bidders and sellers, the implications for the auctioneers. I think Ebay would be better if bids were blind, because this would remove the bid at the last moment effect, but by better I mean less annoying.
Ebay is currently very much a Prisoner's Dilemma situation - some bidders abuse the system by bidding at the last moment to exploit the foolish bidding techniques of others; if you don't do that, then the last-minute bidder will increase their bid to just exceed yours, so you won't get the item. If you do it too, you ruin the system for any fair players, who are thus forced to also adopt the negative approach.
However, if Ebay adopted the system that I think would be better, there are several unwanted effects that would probably occur. One possible effect is that I would have to pay more when I win an auction, since other bidders won't be bidding foolishly incrementally, so my last minute bids won't provide me with any advantage. This, if it were the case, would be good for the seller, of course. However, the other effect that I foresee from such a change is that people wouldn't use Ebay any more, because blind bidding wouldn't be as compelling - there'd be no feedback as to what an appropriate price is for an item, it wouldn't seem interactive, you wouldn't seem to be 'winning' anything. People would go to some other auction service that still uses stupid broken methods.
In my world, people are logical beings to whom game-theory applies. Unfortunately not very many people live in my world.
[08:56]
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