Comments on: Understanding the winner’s curse

By: Presh Talwalkar

Presh Talwalkar — Fri, 21 Nov 2008 08:55:36 +0000

Good question. I think one of the problems is the people who know the answers also understand the answers have value and so they charge a lot for their services! Not surprisingly, I learned game theory from some professors who made money or could make good money by consulting…So sorry, I don’t know any specific resources on PPC advertising auctions.

I can speak a little bit about auction theory in general. Most of what I learned is from lectures and class notes. We used the book “Putting Auction Theory to Work” as a textbook but it is very technical so not standard reading.

In researching this article, I also came across a paper which has a fascinating introduction:
http://www.nuff.ox.ac.uk/users/klemperer/PricesWinnersCurse.pdf

By: Prabhu

Prabhu — Thu, 20 Nov 2008 06:32:11 +0000

I do a bit of PPC advertising. This is an interesting way to think about bidding. In our team, we always come across the dilemma: “Are we paying too much for having our Ad in the #1 or #2 spot?” To this day, I’m left scratching my head because each case is different and it requires a lot of testing to maximize ROI.

Presh, would you recommend an introductory book or thesis of some sort on this subject? Or at least turn me to the material that sparked this great post of yours.

By: Game Theory, Winners Curse, & Auctions | Simoleon Sense

Game Theory, Winners Curse, & Auctions | Simoleon Sense — Wed, 19 Nov 2008 13:51:03 +0000

[...] I took a class on game theory in business school but I found it difficult to apply what I had learned in a systematic and simple manner. In this post, Presh Talwalkar, does a fantastic job of presenting examples of game theory in action. In addition, Presh talks at great length about the concept of winners curse and the application of game theory to auctions. Click Here To Skip The Introduction And Read A Full Article On Game Theory & The Concept of Winn… [...]

By: Presh Talwalkar

Presh Talwalkar — Wed, 19 Nov 2008 09:17:52 +0000

Good points. First, actually this isn’t a good thing for the free market! In baseball the “new” owners drive up prices for free agents and that affects all contracts, through arbitration and other negotiation. When player is overpaid it makes all contracts more expensive…This is one reason why leagues make specific rules to avoid problems (like the NBA increasing the minimum age to 19 to avoid speculating on high school players).

As for oil, this is a good question. It is because oil is variable that makes the game interesting. If everyone could predict oil’s price, then the bidding would be fairly on-target. It is the variability of oil that makes bidding a risky proposition. The player that overestimates value is the one that loses.

By: Mark W.

Mark W. — Tue, 18 Nov 2008 16:57:02 +0000

You’ve got to hand it to those newcomers. It’s the free market in its’ purest form in my opinion. Who knows – they might have come up with an efficient business solution where they won’t get bitten. They might not even know about the winner’s curse but somehow they’re able to ‘overcome’ it.
There’s one thing that wasn’t mentioned in your example regarding the oil field. Oil is a commodity whose value changes daily and can change dramatically as we have all witnessed lately. How is that variable factored into the winner’s curse?