The Ideal Auction – Numberphile



Preston McAfee is the chief economist at Microsoft.
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47 comments

  1. If this 'economist at Microsoft' business doesn't work out, I bet Preston McAfee could be a great Jeff Goldblum impersonator.

  2. 2:44 given that trading behaviour is also observed in chimpanzees, I wouldn't be surprised if primordial auctions went back millions of years. Like if you have a nice sharp stone, you might want to trade it with someone that has a few liters of berries, instead of someone who only has a handful.

  3. Paul Milgrom and Robert Wilson have won the 2020 Nobel Economics Prize for their work on auction theory

  4. It's unbeliveable how I've landed in this video and it was EXACTLY what I was searching for. Thanks!!!!

  5. In all these cases it’s almost impossible to do away with the inherent bias (e.g. the competitive pressure etc.), the cheating mechanisms, and the price fixing schemes. A fair auction is theoretically possible, but practically improbable. Not to mention that there are too many arbitrary factors and considerations that go into determining the value (monetary, sentimental, or otherwise) of an item by its price. The reserve is the only crude hint you get for what someone is willing to accept for an item. But if you go with the reserve strategy then you’ve essentially bought into someone else’s expectations and valuation scheme. If you want an item bad enough that you’re willing to be subjected to its funky price action in an auction environment, then be prepared to be legally and royally ripped off.

  6. Man, this guy sure can talk. I could listen to him talk all day, he has a very nice, but authoritative, voice, that really makes you want to listen to what he says

  7. Wouldn't it be better to have a kind of vickrey auction where the highest bidder pays the "square root median" of the 1st and 2nd bid? ( sqrt[first * second] )

    This would avoid situations like the one described in the video, where one party is willing to pay much more than the competition. In these extreme situations the interested party would still pay a fraction of the price they were willing to offer, while keeping the final price well above of the other parties' bids.
    This would make virtually no impact in cases where the price is well established and solve the previous issue.

  8. This reminds me of government contractors bidding on contracts. There is also a version of that where the second lowest bidder gets the contract to avoid extremely unrealistic bids.

  9. The most importaint takeaway from this video is that rust and speed are correlated when it comes to bikes

  10. An interesting twist is when the bidders are the sellers. For instance, when contractors put in bids to a company or government to do a construction project for them. This is typically in the form of sealed bids, which also have either certain minimum requirements of the bidders, or they include information other than just their price point that are factors in evaluating their ability to do the job to the owner's satisfaction. Contradictory to the stereotype of government projects, it doesn't always go to the lowest bidder.

  11. I was an art auctioneer for 3 years and sold artworks up to the $150 000 range. Ask me questions if you are curious.

  12. In software engineering, getting a project to do is often kind of an auction, but it usually is kind of who does it for the lowest price, not the highest

  13. What would you buy? 13:11
    1 Bike, reallly fast, kinda rusty (Mostly broken but very shiny) for 500$
    2 Bike, really rusty, kinda fast for 430$
    3 Fast, rusty bike for 425$
    4 Rustiest, fastest bike for 250$

  14. ebay makes it easy to see what thing sold for… Just filter by "sold items", and it'll give you a list of items, if the price is green it sold for that much.

  15. The best way to pay the least on an auction on ebay is to search for misspelled items such as playstaion 4 or X Box on. These items don't show up in searches when buyers are searching for them and the lower exposure means less people bid on them, lowering the final price significantly. It artificially (through the ineptitude of the seller) limits the demand for a relatively desirable item.

  16. I was able to sell a 2 dollar bill for 89 bucks in an auction, so basically you start the action at one penny, then you have a number of people start bidding, but the catch is the first place person pays their bid gets the thing, but the person is second also pays their bid, but they don’t get anything. The first place was 45 bucks for the two dollar bill and the second place was 44 bucks. Woulda been a hefty profit but I decided to be ethical and have them use Monopoly money, but I told them that one of them had more money than the other, in fact they have the same amount

  17. 2017: "If there's a storm and people buy out all the shampoo, an auction might make sense."

    2020: "Coronavirus says we need an auction on toilet paper, do I hear $500 a roll?"

  18. If you can see what people bid, can't you just bid lower than the highest bidder just to screw with them? The vickrey auction sounds exploitable as a troll on the internet and in illegal settings.

  19. 4:34 I see a difference. In a sealed-bid auction, you must decide an exact bid amount in any auction you want to enter. But if you enter a Dutch auction, and someone bids before the price has got down to what you'd pay, you don't have to decide exactly what your bid would be. In any case, as you show, Vickrey auctions are fairer for the buyer than either of those types.

  20. Very late to the party, but an interesting wrinkle occurs when we consider that the auction doesn’t have to operate in the interest of the seller. I work for an engineering firm that often conducts sealed bid auctions with contractors to identify the lowest price for which a firm is willing to construct our designs or with vendors to determine the lowest price for which they will sell our clients some piece of equipment. The behavior is similar to that discussed in the video, except instead of each bidder having a maximum price they would be willing to pay, they have a minimum price that they would be willing to charge, and each contractor bids as much above that floor as they think they can without exceeding the other bids. It’s interesting to imagine an adjusted English or Dutch auction with the same goals. An Buyer’s English Auction would set a high starting price and ask bidders to go below. A Buyer’s Dutch would start at $0 and go up until someone is willing to provide the goods or services. Fun stuff.

  21. There's also Chinese auctions where you buy tickets, put your name on them, and put them in bags for items you want. Someone will pick a random ticket from each bag and if it's yours then you win the item. Ideal for family reunions.

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