[HN Gopher] Vickrey Auction
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Vickrey Auction
Author : EricButton
Score : 63 points
Date : 2023-06-29 15:55 UTC (7 hours ago)
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(TXT) w3m dump (en.wikipedia.org)
| drpepper0101 wrote:
| I wonder if this would work in the US for housing/real estate?
| hgsgm wrote:
| This is how real estate works. It's called "escalation" in real
| estate.
| mtlynch wrote:
| Vickrey auctions are really neat! It seems like everyone walks
| away feeling like they got a good deal.
|
| Kevin Lynagh wrote a great blog post about how he convinced a
| friend to sell a portion of his inventory of small-run of
| mechanical keyboards via Vickrey auction.[0]
|
| The friend normally sold the keyboards for $500, but the winners
| of the Vickrey auction paid $1,668. They were all willing to pay
| substantially more, too, with the highest bidder offering $2,684.
|
| [0] https://kevinlynagh.com/notes/pricing-niche-products/
| shubhamgrg04 wrote:
| It would be interesting to see if this model can be applied to
| other enthusiast-driven markets or if it's uniquely suited to
| markets with high-value, low-volume products."
| zokier wrote:
| I think that using uniform price auctions for nvidias
| troublesome 3080 launch would have been beautiful, same for
| other things that have issues with scalpers and whatnot
| lucb1e wrote:
| ...is another word for sealed-bid second-price auction, to save
| you a click
| davidpfarrell wrote:
| Reminds me of this old auction site who's name I can't remember
| (power in numbers or somesuch?) ... I purchased an Amplifier for
| my Camaro ... This was in like 1996 ... There were multiple
| available for purchase (like 25 or so) ... the top X bidders won
| the right to buy, but we all paid the lowest winning bidder's
| price ... I think I got that amplifier for like $96
| crazygringo wrote:
| This is basically how eBay works for auctions.
|
| A pair of headphones is currently bid up to $55, you place a max
| bid of $100, and at the end, if the final max bid among every
| else is $80, then you win them for $81.
|
| Which is why I never understand complaints against eBay
| "snipers", who bid in the last couple seconds of an auction. If
| you put in your actual honest max bid, the timing simply doesn't
| matter.
| bombcar wrote:
| People complaining about snipers are complaining about not
| being able to snipe - because they could just put in their max
| bid. They want the second bidder to go away.
| josephcsible wrote:
| > Which is why I never understand complaints against eBay
| "snipers", who bid in the last couple seconds of an auction.
|
| If there were only one instance of the thing you wanted, then
| there would indeed be no reason to complain about snipers. But
| if there's multiple different auctions, each selling one of the
| thing you want, you can't bid on a second one until you're
| outbid on the first one, or you'll risk getting stuck having to
| buy them both. Snipers thus result in you being "locked out" of
| the other auctions for way longer than necessary.
| imtringued wrote:
| People complain about snipers because they only know if they
| lose the auction at the last minute.
|
| This means you have to wait until the auction finishes, before
| you can bid at another auction. Constantly failing auctions
| because of some hidden bidder means you are wasting your time.
| It is only worth bidding in the last 30 minutes.
| cinntaile wrote:
| This is exactly why people need to put their actual max bid
| (as the parent explained) instead of trying to lowball, then
| the timing doesn't matter.
| mcphage wrote:
| > people need to put their actual max bid
|
| People don't necessarily know their actual max bid.
| crazygringo wrote:
| Yes they do if they stop to think about it. It might take
| a minute or so of thought, though.
|
| Obviously that max bid can change over time, i.e. if they
| discover the same item cheaper elsewhere two days later,
| but at any given point in time people know their actual
| max bid.
| crazygringo wrote:
| > _This means you have to wait until the auction finishes,
| before you can bid at another auction... It is only worth
| bidding in the last 30 minutes._
|
| This is definitely true if there's more than one item listed,
| but it's still got nothing to do with sniping. It's just the
| fact that eBay auctions usually last for 7 days.
| savoyard wrote:
| A Vickrey auction is what effectively happens when bidders
| "snipe" on eBay.
| nothrowaways wrote:
| What's the reason behind?
| jey wrote:
| It implements the welfare-maximizing outcome, defined as the
| outcome that maximizes the sum of the valuations of all of the
| bidders for the chosen outcome.
| n1b0m wrote:
| Explain it to me like I'm a 5 year old
| cryptonector wrote:
| In a normal auction you take the highest offer, but stiff
| competition will cause the final offer to be too high. If
| we're talking about megarich people buying Rembrandts, who
| cares. But generally this is a bad thing: we're failing to
| discover the real value of the thing being auctioned, and
| we're being wasteful.
|
| For bidding on jobs (e.g., highway construction) one
| normally takes the lowest bid, but the lowest bidder will
| not make any profit and might lose money on the deal, thus
| putting the project at risk. What might happen in those
| cases is that corruption takes root and the lowest bidder
| gets paid more money illegally.
|
| In any case, sealed bid, second price bidding solves the
| problem by removing the incentive to offer the best price
| and instead offer the real value.
| VHRanger wrote:
| The winner pays the price that the 2nd highest bid.
|
| This means all bidders in the auction have a reason to send
| an honest bid rather than trying to game the system.
|
| The person "selling" in the auction also has an efficient
| outcome.
| aidenn0 wrote:
| Though we should note this only works in the absence of
| collusion. If a bidder colludes with the seller, then
| they can increase the amount the highest bidder pays by
| bidding a very high second-highest bid.
|
| If the bidders collude, they can get a very low price.
| This is (obviously) true of most auction systems, but for
| sufficiently public English auctions, bidders that are
| otherwise uninterested in an item might bid on an item
| that is going for obviously far below market.
| n1b0m wrote:
| Yeah finally got why it makes sense to make an honest
| bid. Thanks
| [deleted]
| NeoTar wrote:
| I can't talk about the welfare optimising effects but it's
| a more efficient way to generate a similar outcome to a
| classic 'bid upwards' English auction - I assume you know
| the process of that.
|
| Imagine we have four people competing, who each have a max
| bid of:
|
| Alice: 100, Bob: 150, Charlie: 155, Diana: 180,
|
| In a standard auction bidding would, say, start at 50. When
| the cost exceeded 100 Alice would drop out, similarly for
| Bob at 150, and Charlie at 155. So Diana would win and pay
| 155 (plus maybe one bid-increment, depending on who bid
| first).
|
| So, if each simply submitted their max bid under the Vikrey
| auction rules, Diana would win, and pay 155. The whole
| bidding upwards process can be avoided, which is by some
| standard more efficient, and everyone pays essentially the
| same as they would under and English auction.
| n1b0m wrote:
| Great explanation, thank you
| drc500free wrote:
| In sealed auctions, you want to win by bidding the most.
| But if you win by more than $1, you could have paid less.
|
| In this version, you just bid to win and the seller lets
| you adjust down to that perfect "just barely winning" bid
| afterwards.
|
| It turns out the seller makes more by everyone bidding to
| win than they lose by letting the winner adjust their bid
| after winning.
|
| That's because the 2nd place bid ends up being higher than
| the winner's used to be.
| n1b0m wrote:
| Thank you
| whimsicalism wrote:
| Is this not subject to an equivalence theorem just like
| revenue?
| koube wrote:
| The Undercover Economist book mentions these. They're honest but
| they're publicly embarrassing for governments in auctions with
| few bidders, because sometimes there would only be two bidders,
| one bidding $100k and one bidding $4, so people were wondering
| why the winner who was bidding $100k was only paying $4 for a
| license. [0]
|
| The book goes on to describe the UK 3G Telecom license auction[1]
| and explain how it went much better. In summary it was more like
| a typical auction but instead of bidders proposing bids, the
| price went up gradually and the the bidders did something like
| stay as the price went up or leave when the price went too high
| for them.
|
| [0]: https://blogs.cornell.edu/info2040/2022/10/31/when-an-
| auctio... [1]:
| https://www.nuff.ox.ac.uk/economics/papers/2002/w4/biggest29...
| andrewmutz wrote:
| What's the difference in the example of the embarrassing public
| auction? In that example, doesn't one of the two bidders leave
| the auction when the price rises over $4? Leading to the same
| outcome?
| qup wrote:
| You don't choose to leave in a Vickrey auction, your
| participation is limited to one bid.
| koube wrote:
| That's correct, the price at the end is theoretically the
| same, but the public doesn't know about the high bidder's
| price in the second option. The second option (or just a
| regular auction) just saves you some embarrassment, which is
| nothing in the end, but in the political world embarrassment
| is not nothing.
|
| The other benefit (for the seller) mentioned was that bidders
| get a social signal that other companies think the license is
| apparently worth the current price, which could pressure the
| price upwards. Versus Vickrey Auctions where it's a
| completely blind bid.
|
| If you're curious, if you google "undercover economist
| vickrey auction uk" you may or may not find a ctrl+f
| searchable pdf where you can read this section yourself.
| crazygringo wrote:
| If these auctions were common, it seems like it would be a ripe
| opportunity for arbitrage.
|
| In a case like this if you thought the market value was $100k,
| someone with no interest in the license should go ahead and bid
| something like $60k anyways. If everybody else placed silly
| bids like $4 "just in case nobody else bids for real", you'll
| win and resell it and walk away with $40k profit.
|
| Of course this assumes there is an actual market for the thing
| -- that a telecoms company really will take it off your hands
| for $100k.
|
| Although if there really is only one person in the world who
| wants something and they would pay $100k for it... and
| literally nobody else has any interest in it at all... then
| there's a good argument to be made that it really is worth $0.
| Like a remote island that is utter perfection for one hermit,
| but of zero interest to anyone else.
| traek wrote:
| A key property of a Vickrey auction is that it is incentive
| compatible, i.e. that it isn't possible to achieve a better
| expected outcome by bidding something other than your true
| valuation.
|
| Your example relies on the telecom company (or any secondary
| buyer) not bidding in the auction or bidding only $4. A
| strictly dominant strategy for the telecom company would be
| to bid $100k in the auction, winning it for $60k (the second-
| highest price).
| qup wrote:
| > In a case like this if you thought the market value was
| $100k, someone with no interest in the license should go
| ahead and bid something like $60k anyways. If everybody else
| placed silly bids like $4 "just in case nobody else bids for
| real", you'll win and resell it and walk away with $40k
| profit.
|
| No, in a case like this, you would risk having to fork over
| 60k, and you would in reality win nothing. The company that
| bid 100k gets it for 60k, you spend and receive nothing.
| lpage wrote:
| This thread [1] covering the 2020 Prize in Economic Sciences,
| awarded to Paul Milgrom and Bob Wilson for their improvement of
| auction theory, is a good read.
|
| Vickery Auctions are one of many in the auction format bestiary,
| and like all classical formats, they predate both computers and
| modern auction theory. What's really cool these days (and I'm
| admittedly biased since it's my space) sits at the intersection
| of computer science and economics. Economic mechanisms and
| auction formats that use everything from SAT solving and
| combinatorial optimization to machine learning and function
| approximation to drive better real-world economic outcomes.
|
| [1]: https://news.ycombinator.com/item?id=24753291
| fidotron wrote:
| In Quebec we had an investigation into widespread corruption in
| construction (
| https://en.wikipedia.org/wiki/Charbonneau_Commission ) during
| which the major government witness made the very strong case that
| thanks to the lowest-bidder-at-lowest-bid-price auction process
| used by municipalities you either have to be corrupt or you will
| go out of business. I couldn't help thinking he should have cited
| Vickrey at the time (unlikely that he would be aware), and the
| province should have move to second price auctions for dishing
| out government contracts, but you would have the small challenge
| of persuading the populous that paying an amount which isn't
| actually the lowest bid is actually in the long term interest of
| everyone, especially if the short term beneficiaries have a track
| record of organised crime.
| whimsicalism wrote:
| I don't think a Vickrey auction would solve this problem.
| matthewdgreen wrote:
| But as the article points out, Vickrey-style auctions are
| vulnerable to collusion. Presumably in an area where there's
| already lots of corruption you're going to see plenty of this.
| Veserv wrote:
| They are vulnerable to collusion in the sense that if all
| partys collude to decide who is going to win, then the winner
| bids X and the losers never put in a bid, so the pre-
| determined winner pays $0. In that sense, literally every
| auction is vulnerable to collusion. The only net downside to
| the Vickrey auction is that the winner still wins even if
| there is a defector, they would just pay more. This is in
| contrast to say a normal first-price auction where the winner
| values at $100 and the losers value at $99, so they collude
| to have the winner bid $1 and the colluders bid $0, but then
| there is a incentive for the colluders to defect and pay $2
| to get the thing they value at $99. So, vulnerable to
| collusion in this sense is more that it is vulnerable to
| collusion with little to no risk of defection. However, if
| there are non-colluders, then the best you get is the highest
| bid of the non-colluders.
| EricButton wrote:
| true. wonder if there's something like the average of the 2
| best bids that would mitigate this problem. coupled with
| anti-corruption enforcement...
| fidotron wrote:
| Indeed, you would need carrot and stick. The point the
| witness made was that under the current system you could not
| profit without collusion. (Edit to add: and that means that
| all honest people end up driven out of the construction
| industry). At least under a Vickrey system an honest person
| can make a profit hypothetically proportional to the social
| benefit provided.
|
| The flip side is you would have to tell people that while
| you're going to increase what you pay them your tolerance for
| collusion (and it is essentially tolerated today) will go
| down, and mean it.
| papandada wrote:
| I posted something in the online classifieds this way. In demand
| but manufacturer was sold out for months. I didn't know how to
| price it, and I wanted to get a fair price as well as being fair
| to buyers.
|
| Well, kijiji buyers were not into that. No replies. Just one guy
| who told me it was the dumbest ad he had ever read. So, I'm still
| sitting here staring at those ironmaster dumbbells.
| hgsgm wrote:
| Don't obsess over the price you get for used stuff.
|
| If you want, post for sale high, and lower the price over time
| until you get a sale.
| [deleted]
| tasuki wrote:
| The Handshake [0] project used (uses?) Vickrey auction to auction
| off the initial supply of names. It had some other cool ideas,
| such as replacing certificate authorities with self-signed
| certificates verified by the blockchain.
|
| I know everyone hates blockchain, I kind of do too, but Handshake
| I found genuinely interesting.
|
| Disclaimer, I own some Handshake names so you could say I'm
| shilling for it but mostly the project appears dead anyway...
|
| [0]: https://handshake.org/
| donmcronald wrote:
| I almost bought a Handshake domain, but didn't because of the
| Vickery auction they use. I wanted to register one that matches
| my best .com. It's not an in demand name, so it's available,
| but the last thing I want when I'm buying a domain is a big
| announcement and a bidding war.
|
| _Hey look at me! I 'm trying to buy a domain over here! Come
| compete with me!_
|
| It has no value to anyone except me and anyone that can usurp
| it and try to sell it to me. I don't want to compete with a
| bunch of crypto bros that have tons of paper money (aka coins)
| in a low liquidity system, so I opted not to bother.
|
| Now I'm glad I didn't bother. It would have been a huge hassle
| just to get HNS (?) and now there are tons of blockchain TLD
| startups. With the collisions that creates they're basically
| recreating the namespace fragmentation and ambiguity that
| results from every platform having independent handles.
| tasuki wrote:
| I completely empathise with your situation.
|
| Last time I checked (not very recently), all the other
| blockchain domain systems were worse than Handshake. Doesn't
| mean they won't win...
| oldsklgdfth wrote:
| As a tangent, I've heard the Google and others are moving away
| from second price auctions.
|
| Does anyone have more info on this topic?
| fidotron wrote:
| Depends a bit on the subcategory, but for programmatic video
| with real time bidding basically the whole industry started
| second-price, then moved to first price (different entities,
| such as exchanges, felt they wanted to extract more profit) and
| these days it barely qualifies as an auction process due to the
| amount of "side bidding".
| cldellow wrote:
| I worked for several years in the ad tech space. Display ads on
| the open web are...something else. IMO, second price auctions
| don't work well in the online ad world.
|
| In the real world, you know:
|
| (1) all bids are submitted before being reviewed
|
| (2) the highest bidder is actually going to pay the second
| price, and there's some friction in the form of a buyer's
| premium that makes it cost inefficient to immediately resell
| the item
|
| Neither of these hold in the ad space.
|
| Re (1), if you're trafficking ads through GAM, Google gets a
| chance to see the highest bid before deciding to commit to a
| bid.
|
| Re (2), a publisher can insert fake line items that dynamically
| activate on a per-impression level. The goal of the fake line
| item is to be a stalking horse to artificially inflate the
| second-highest bid so that the second-price auction is
| effectively a first-price auction. If the publisher
| accidentally bids too high and wins the auction, they can just
| run the auction again.
| soared wrote:
| I'm not supply side, but I thought they could just a floor
| price? Or is that only for pmps?
| VHRanger wrote:
| I also work in ad tech (lead the algo team in job ads).
|
| Second price auctions online are great, but they're not
| strategyproof. You still need a bidding strategy.
|
| For thin/small/sparse markets they simply don't work. You
| need a first price auction.
|
| Google definitely game their own 2nd price auction, but this
| is just one reason amon many they're not strategyproof.
| whimsicalism wrote:
| Do advertisers even control their bid in the auction? In my
| experience, not fully.
| VHRanger wrote:
| My job is to write algos that optimize the bid on behalf
| of clients.
|
| Most pay per click ad platforms have an API that let you
| set the bid.
| whimsicalism wrote:
| I also work in this field,
|
| > Most pay per click ad platforms have an API that let
| you set the bid.
|
| even when you are let to set the bid, usually the auction
| is not conducted just based on your bid but also
| adjustments from the probability that you will actually
| pay out
| soared wrote:
| I've been a buyer for 8 years are so on ttd and another
| dsp but haven't heard of the probably of paying out thing
| - can you share more info on that?
| whimsicalism wrote:
| If you are bidding on a pay per click basis, typically
| your bid will be adjusted to expected revenue based on
| the probability someone actually clicks on your ad. For
| CPM ads this probably doesn't apply.
|
| This is not for open web exchanges, referring more to
| stuff like adwords, facebook, etc.
| soared wrote:
| Ah shoot that makes sense I was so confused. I was
| thinking for programmatic the ssp was reducing a bid
| based on whether they expected the advertiser to actually
| pay haha
| currymj wrote:
| One problem with second price auctions is their lack of what is
| known as "credibility". Google has both the incentive and
| opportunity to lie to the highest bidder about what the second-
| highest bid was, so they can charge more.
|
| They never literally did this, but ended up doing some
| convoluted scheme involving subsidies and rebates that,
| according to a recent lawsuit, amounted to something
| equivalent.
|
| First price auctions don't have that problem -- you know
| exactly what you should pay if you win.
| skimdesk wrote:
| Facebook's ad platform famously uses the Vickrey-Clarke-Groves
| auction [0]. In theory it rewards advertisers for bidding for ads
| using their true valuation, or rather, the lifetime value of a
| customer.
|
| In practice, it's a lot more convoluted, but the basic principle
| is fascinating.
|
| [0]:
| https://en.m.wikipedia.org/wiki/Vickrey%E2%80%93Clarke%E2%80...
| soared wrote:
| All of programmatic was vickrey up until a few years ago when
| everyone switched to traditional first price auctions. I miss
| those days - it was easy to bid outrageous prices ($100 cpms)
| but still pay a reasonable amount. Now you need deep/machine
| learning to evaluate each bid value, and then another algo to
| predict how much you can shave off that bid and still win the
| auction.
| soared wrote:
| Programmatic advertising used to be vickrey but switched to first
| price, and now everyone has to use bid shading to predict how
| much they can reduce their bid in order to still win the auction.
|
| https://snigel.com/blog/what-is-bid-shading#:~:text=Bid%20sh....
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