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gorillapaws's avatar

Are there some practical conclusions from game theory analysis of bidding strategies in english auctions?

Asked by gorillapaws (20732points) September 7th, 2012

I’m trying to learn about bidding strategies for a standard public english auction. I was googling around for info on this to see if there were some practical suggestions from game theroy analysis, but it all seemed very academic with very little in the way of practical strategies for when to jump bid, how much the jump bid should be for (maybe expressed as a multiple of the minimum bidding increment), the timing of when it’s appropriate to initiate a jump bid etc.

I would think there these tactics would be fairly easy to test experimentally to determine which ones yield the optimal outcome for the bidder (winning the auction for the lowest possible price, and not exceeding the item’s actual value).

Can anyone point me to some good resources on this topic that don’t require a PhD in mathematics or microeconomics to wrap my head around? I’m just looking for an evidence-backed (mathmatically sound) strategies and tips for how to win english auctions so I can help my girlfriend get a car at the local car auction.

She’s been to the local auto auction for several weeks now with no luck, and is somewhat savvy about how much the cars are worth, and has been outbid on every car thus far. Every car she has previously owned has come from auctions in the past, and for many years her father and her have been able to grab up bargains, drive them for months/years and then re-sell them (often for more than they initially paid). I say this just to point out that she’s not new to auctions, but I suspect that she may not have the best bidding tactics (simply incrementing the bid by the minimum required bid and eventually dropping out when it get’s above what she wants to pay).

Any advice, or articles/resources you could point me to so I can do some research would be greatly appreciated.

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5 Answers

Bellatrix's avatar

I don’t know about specific tactics but I use Hammersnipe which is a sniping tool. It places my bid at the last possible moment to help prevent the price being jacked up.I don’t know if you can use something like this when you are bidding on car auction sites. You still risk being outbid but I have a pretty good success rate.

gorillapaws's avatar

@Bellatrix This isn’t online, it’s a physical auction.

6rant6's avatar

I don’t see how it’s applicable. If the item is worth $10 to me then I should be willing to bid up to $10 regardless of your strategy. I won’t sometimes stop bidding at $7 and sometimes at $11.

Collusion is possible of course. And it’s possible to use your bidding to convince another that the item is worth less. So yes to psychology. But Game theory? I don’t see it.

gorillapaws's avatar

@6rant6 “I won’t sometimes stop bidding at $7 and sometimes at $11.” But the reality is that often people are willing to do just that, especially when the true value of the item is unknown. At the car auction, you aren’t allowed to get a mechanical inspection, just briefly see them beforehand with the motor running, so there’s incomplete information for all parties involved, and a constant fear of unknowingly buying something with expensive problems.

In this sense, it shares some similarities with the prisoner’s dilemma, in that there is an element of uncertainty, competition, fear, and meaningful consequences. Perhaps I don’t understand the scope of game theory as well as I thought, but I was under the impression that this kind of thing fell into its domain.

6rant6's avatar

Game theory is not about convincing your opponent something is true. By choosing your options randomly, you are in effect telling your opponent, “you can not use my action to deduce the situation.”

Game theory doesn’t rely on your strategy being secret. So in the absence of information from you, your opponent must adopt a “best strategy” which in this case would be bidding what the object is worth.

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