Competitive Bidding with Dependent Value Estimates

Winkler, Robert L.; Brooks, Daniel G.

doi:10.1287/opre.28.3.603

Cited by 27 publications

(7 citation statements)

References 13 publications

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“…In the extreme, with perfect correlations of 1, the contestant with the highest standard deviation will have the highest performance level with probability 0.5 (i.e., when the performance levels are above zero). This is consistent with the results in Winkler and Brooks (1980) that in competitive bidding with two bidders who bid their best estimates, the "winner's curse" can be avoided by the bidder with the lower error variance if the correlation between their errors is higher than the ratio of the smaller to the larger error standard deviation. For s * < 1, this ratio is s * /1 = s * , which is consistent with the change in the sign of the slopes at s * = r (both numerically from Figure 1 and analytically from Proposition 6 when r * = r).…”

Section: Modifying Variabilitysupporting

confidence: 91%

Modifying Variability and Correlations in Winner-Take-All Contests

Gaba

Tsetlin²,

Winkler

2004

Operations Research

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We consider contests with a fixed proportion of winners based on relative performance. Special attention is paid to winnertake-all contests, which we define as contests with relatively few winners receiving relatively large awards, but we consider the full range of values of the proportion of winners. If a contestant has the opportunity to modify the distribution of her performance, what strategy is advantageous? When the proportion of winners is less than one-half, a riskier performance distribution is preferred; when this proportion is greater than one-half, it is better to choose a less risky distribution. Using a multinormal model, we consider modifications in the variability of the distribution and in correlations with the performance of other contestants. Increasing variability and decreasing correlations lead to improved chances of winning when the proportion of winners is less than one-half, and the opposite directions should be taken for proportions greater than one-half. Thus, it is better to take chances and to attempt to distance oneself from the other contestants (i.e., to break away from the herd) when there are few winners; a more conservative, herding strategy makes sense when there are many winners. Our analytical and numerical results indicate that the probability of winning can change substantially as variability and/or correlations are modified. Furthermore, in a game-theoretic setting in which all contestants can make modifications, choosing a riskier (less risky) performance distribution when the proportion of winners is low (high) is the dominant best-response strategy. We briefly consider some practical issues related to the recommended strategies and some possible extensions. Subject classifications: decision analysis: strategies in contests, modifying variability, modifying correlations. Area of review: Decision Analysis.

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Section: Modifying Variabilitysupporting

confidence: 91%

Modifying Variability and Correlations in Winner-Take-All Contests

Gaba

Tsetlin²,

Winkler

2004

Operations Research

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“…He shows that when bidders base their bids only on the private sample information they get, the maximum bid is almost surely equal to the true value. Winkler and Brooks (1980) investigated the impact of uncertainty in a common value auction. They demonstrate how the valuation dependence is related to "winner's curse."…”

Section: Impact Of Information In Auctionsmentioning

confidence: 99%

Effects of Information Revelation Policies Under Cost Uncertainty

Kannan

2012

Information Systems Research

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T he paper presents insights regarding the key learning-related factors a buyer should consider when deciding the extent to which information about bids is revealed in a procurement auction context. It offers the insights by analyzing the following two first-price sealed-bid policies in a private-value sequential auction with no winner dropouts: (i) iis, where only the winner's bid is revealed, and (ii) cis, where all bids are revealed. Our analysis identifies two important learning effects-the extraction and the deception effects-as having significant welfare implications. Both these effects arise because of a bidder's desire to gain an informational advantage relative to his competitors, but their manifestations are different. The extraction effect occurs because of a bidder's incentive to learn about his competitors, and the deception effect is a consequence of the incentive to prevent an opponent from gaining the information. Both effects lead to higher bid prices, and either may be dominant from a procurer surplus standpoint. With the deception effect, social welfare can decrease even when the number of suppliers increases, a result that is counterintuitive. The paper also discusses how insights regarding the learning effects might apply to other policies.

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“…The earliest attempt to relax independence of the valuations of the players can be traced at Wilson (1977). Winkler and Brooks (1980) examined dependence under a bivariate multinormal distribution. In a common value auction, the values of the auctioned object for the different players are interdependent, in the sense that for each bidder the exact value is unknown and depends on information possessed by the opponents.…”

Section: Auctions and The Rise Of The Theory Of Competitive Biddingmentioning

confidence: 99%

Optimal bidding in auctions from a game theory perspective

Lorentziadis

2016

European Journal of Operational Research

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Competitive Bidding with Dependent Value Estimates

Cited by 27 publications

References 13 publications

Modifying Variability and Correlations in Winner-Take-All Contests

Modifying Variability and Correlations in Winner-Take-All Contests

Effects of Information Revelation Policies Under Cost Uncertainty

Optimal bidding in auctions from a game theory perspective

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