Game theory > Auctions

The wallet game: a neat auction
Imagine you are taking a game theory class, and the professor announces an experiment. You and another student are called up to the front of the classroom to participate in an auction. Here is how the auction works: --the prize money equals the sum of money in both of your wallets --the winner is ...

How not knowing game theory can cost you millions
A few months ago, The Economist ran a great article about some of the practical applications of game theory. My favorite part of the article was the following paragraph which highlights how ignorance of game theory can be costly:

Video: how to buy a car using game theory
This video is about a car buying technique from Professor Bruce Bueno de Mesquita. I previously enjoyed one of his TED talks about predicting political events. The video is short and offers great practical advice for buying a car in America. Give it a watch:

Amazon’s $23.6 million book: a hilarious bidding war
Nearly 1 year ago, an out of print book about flies was listed at over $23.6 million on Amazon.com. As good as Peter Lawrence’s The Making of a Fly was, no one could see the sanity in that price. (thanks Robert for sending me the story) The listing was noticed by ...

Video: don’t use penny auction sites
I have been meaning to write about penny auction sites like Quibids and Skoreit. These sites got big a couple years ago, and there are some great articles at codinghorror.com about how they are a scam and basically a lottery. This would be fine if the sites were regulated like a lottery. ...

Auction theory puzzle: finding the right number of bidders
If you liked yesterday's puzzle about optimizing with uncertain demand, you'll definitely enjoy today's post. One of my favorite topics related to game theory is the subject of auction theory. The results from auction theory are very interesting, but I have yet to cover much about it because the math can be ...

The Price is Right Wheel Game: what is the optimal strategy?
The Price is Right is a wonderful game show that lends itself to game theory analysis. Earlier I have posted about the games Pay the Rent and Lucky Seven. My friend Aaron emailed me about another interesting problem from the show: I've got a good problem for you to throw at your ...

Game theory in The Matrix – the mathematics of dueling
One of my favorite scenes in The Matrix is the subway fight scene (clip below). Rather than run away, Neo chooses to fight Agent Smith head on. The scene begins with a duel which I find particularly interesting due to the strategies they take.

The Wallet Paradox
Bill Gates meets Warren Buffett at a dinner party and the host tells them to play a game. Each person will place his wallet on the table. The person with less money in his wallet wins all the money. Is anyone favored to win this game? What happens when the game ...

A funny auction commercial
I came across a commercial featuring a rather unusual auction. I enjoyed this more than I'd like to admit... Before you watch it, a fair warning. This video is NOT for the faint of heart. If you don't like edgy comedy, just skip this post and don't watch the video. Here it ...

An evil bidding war
A few readers pointed me to an amusing and devious bidding war featured on the site Gizmodo. You can see the full-sized picture by clicking on the thumbnail image I've posted: The postings suggest an interesting story. Someone has lost her iPod touch and is offering $50 as a reward. And someone ...

How to avoid the winner’s curse using game theory
I've made a huge mistake--GOB and others from Arrested Development Strangely, in many auctions it is a huge mistake to win. Winning can either be unprofitable or less profitable than expected, kind of like a Pyrrhic victory. The tendency of the winner to overpay is more commonly known as the winner's ...

Game theory in the news–the financial crisis, Macs and viruses, the bus-wait formula, and more…
[Update: Welcome readers from Simoleon Sense] I'm on vacation through the end of the year so I'm mixing things up. I've been seeing a lot of good articles on the web about game theory and want to share them with you. Enjoy and happy holidays. (If you're looking for more to read, ...

Understanding the winner’s curse
Sometimes winning comes at too high a cost. In such cases, it is the winners that are the real losers. The phenomenon is known as the "winner's curse" and it affects a wide variety of situations, from baseball free agency signings to stock market IPOs. Whether you are an executive in ...

Business Drinking and the Dollar Auction Game
Business drinking provides a fun subject for strategic thinking. My friend told me about a telling experience on a business trip. He had visited a bar after a long day only to find members from a competitor company show up as well. The competition greeted him politely and offered to ...

Want to Help A Beauty Pageant Winner Run a Charity Date Auction?
This is certainly one for the law of unintended consequences. I mentioned the idea of auctioning myself for a charity in my article on revenue equivalence to make the narration interesting. Well, lo and behold, this article has turned out to be interesting in a completely different way. The article is ...

Why eBay and Craigslist are Similar in Theory: the Revenue Equivalence Theorem
I can be bought. How can I get a high selling price? Imagine for a moment that I was for sale. Let's say I was selling myself as a date to raise money for charity. There are many factors I might consider to increase my selling price. How I describe myself is ...

What do You Want to Know about Auctions?
In the internet age, auctions are everywhere. Auctions are used in eBay, Craig's list, Google Adwords, dating websites, and job websites--just to name a few. Auction theory can help you navigate the uncertainty. You can improve your position as an informed buyer or seller. I've used the auction theory to buy ...

What is Auction Theory?
Auctions are Everywhere Auctions are so common nowadays that I bet most of you have participated in auctions in the last year. Even if you haven't, auctions have probably impacted your life indirectly. The cost of the road you drive on, the price of your airline ticket, and where your medical ...