Going, going, gone: competitive decision-making in Dutch auctions

Abstract

In a Dutch auction, an item is offered for sale at a set maximum price. The price is then gradually lowered over a fixed interval of time until a bid is made, securing the item for the bidder at the current price. Bidders must trade-off between certainty and price: bid early to secure the item and you pay a premium; bid later at a lower price but risk losing to another bidder. These properties of Dutch auctions provide new opportunities to study competitive decision-making in a group setting. We developed a novel computerised Dutch auction platform and conducted a set of experiments manipulating volatility (fixed vs varied number of items for sale) and price reduction interval rate (step-rate). Triplets of participants ($$N=66$$ N = 66 ) competed with hypothetical funds against each other. We report null effects of step-rate and volatility on bidding behaviour. We developed a novel adaptation of prospect theory to account for group bidding behaviour by balancing certainty and subjective expected utility. We show the model is sensitive to variation in auction starting price and can predict the associated changes in group bid prices that were observed in our data.

Dutch Auction: Prime time to buy

“…Iteratively repeating these calculations at routine time points throughout the auction would provide an interesting test and dynamic extension of a theoretically-motivated but static model. Bennett et al (2020) proposed a similar model based on Prospect Theory in an experimentally-constructed Dutch Auction. In their setup, three people competed in a live closed auction where they contrasted auctions that exclusively employed discrete or continuous price drops.…”

“…In their setup, three people competed in a live closed auction where they contrasted auctions that exclusively employed discrete or continuous price drops. Notably in Bennett et al (2020), the price function would decline in predictable trajectories. Therefore, one key advancement of this proposed model for the Price-Drop TV dataset is that it would need to accommodate a more complex price prediction process that blends discrete and continuous price functions that varied in both size and trajectory.…”

“…Over the course of an individual Dutch auction, slower price decreases and, consequently, longer overall duration also lead to higher-priced winning bids (Katok & Kwasnica, 2008). Relatedly, Bennett et al (2020) further investigated price declines within a computerised Dutch Auction where bidders with hypothetical funds competed against each other. They found that winning bids were not affected by whether the price decreased in discrete-steps or in a continuous fashion.…”

How aging of the global population is changing oncology

“…Such positivity appears to improve mood and quality of life for newly diagnosed patients with cancer by reducing prognostic awareness [127]. In the longer term, however, decision-making based on risk aversion and anticipated regret [128][129][130] -a response to threatened losses, as used by auctioneers to drive up offers from competing bidders [131,132] -appears to undermine patient returns [133,134].…”

Human Performance in Competitive and Collaborative Human-Machine Teams

“…Alternatively, a competitive group environment can result in enhanced motivation (Camerer & Hogarth, 1999) and increased between-member monitoring -leading to increased accuracy via redundancy gains (Niehorster, Cornelissen, Holmqvist, & Hooge, 2019). However, competition also leads to erratic behaviours (Niehorster et al, 2019) and sub-optimal decision-making (Bennett et al, 2020). Critically, HH teams demonstrate coordination and anticipation of teammate behaviour (Demir, McNeese, & Cooke, 2017;Grimm, Demir, Gorman, & Cooke, 2018;McNeese, Demir, Chiou, & Cooke, 2021), two key behaviours observed in teams with collective intelligence (Gupta & Woolley, 2021).…”