Vsauce

The Auction Problem

The next time you buy a retro game or old t-shirt in an online auction, thank William Vickrey’s 1961 paper, “Counterspeculation, Auctions, and Competitive Sealed Tenders” — because the simple auction style we take for granted today is actually filled with nuance and complexity.

Auctions have been around as long as one person has had an item to get rid of and at least two people wanted it. From Herodotus’ writing, we know that the ancient Babylonians held auctions over 4,000 years ago. But auctions haven’t changed very much over time, and the general bidding structures have remained intact. It seems like aside from differences like submitting a single private bid vs. open bidding back and forth, there isn’t a lot to adjust.

That couldn’t be further from the truth, as advances in auction theory in economics have changed our understanding of optimal bidding and optimal selling. By formulating the revenue equivalence theorem and working out the sometimes-harmful incentives in different auction formats, Vickrey and those who followed him are making the complexity of everyday transactions invisible.

*** SOURCES ***

Vickrey, William. “Counterspeculation, Auctions, and Competitive Sealed Tenders.” The Journal of Finance, vol. 16, no. 1, 1961, pp. 8–37. www.jstor.org/stable/2977633

Güth, Werner, et al. “A Theoretical and Experimental Analysis of Bidding Behavior in Vickrey-Auction Games.” Journal of Institutional and Theoretical Economics, vol. 139, no. 2, 1983, pp. 269–288. www.jstor.org/stable/40750595

Rothkopf, Michael H., et al. “Why Are Vickrey Auctions Rare?” Journal of Political Economy, vol. 98, no. 1, 1990, pp. 94–109. www.jstor.org/stable/2937643

Rothkopf, Michael H., and Ronald M. Harstad. “Two Models of Bid-Taker Cheating in Vickrey Auctions.” The Journal of Business, vol. 68, no. 2, 1995, pp. 257–267. www.jstor.org/stable/2353115

Lucking-Reiley, David. “Vickrey Auctions in Practice: From Nineteenth-Century Philately to Twenty-First-Century E-Commerce.” The Journal of Economic Perspectives, vol. 14, no. 3, 2000, pp. 183–192. www.jstor.org/stable/2646925

*** LINKS ***

Vsauce2:
TikTok: https://www.tiktok.com/@vsaucetwo
Twitter: https://twitter.com/VsauceTwo
Facebook: https://www.facebook.com/VsauceTwo
Talk Vsauce2 in The Create Unknown Discord: https://discord.gg/tyh7AVm

Hosted and Produced by Kevin Lieber
Instagram: https://instagram.com/kevlieber
Twitter: https://twitter.com/kevinlieber
Podcast: https://www.youtube.com/thecreateunknown

Research and Writing by Matthew Tabor

Editing by John Swan
https://www.youtube.com/channel/UCJuSltoYKrAUKnbYO5EMZ2A

Huge Thanks To Paula Lieber
https://www.etsy.com/shop/Craftality

Music by Basswaite: https://linktr.ee/Basswaite

Select Music By Jake Chudnow: https://www.youtube.com/user/JakeChudnow

Get Vsauce’s favorite science and math toys delivered to your door!
https://www.curiositybox.com/

#education #vsauce #math

Products You May Like

Articles You May Like

Where are you from and how has it shaped you? | Big Think
Amazing Animal Defenses — FAK #23
Could the Higgs Boson Lead Us to Dark Matter?
Demo Slam: ILLUSION TRICK!
30 Post-Fame Careers of Celebrities and Athletes – mental_floss List Show Ep. 408

Leave a Reply

Your email address will not be published.