I had to laugh at an article in the Fairfax press on strategies for home auctions. The authors contacted some mathematicians to ask about whether there was any theory about such auctions.
Even the head of applied mathematics at the University of NSW, Professor Vaithilingam Jeyakumar, says it would be beyond most of the world’s experts in the field. “I’m not aware of any work having been done on this kind of application of game theory,” he says.
Sorry Prof, but please go and talk to some of the people in your economics department. The analysis of house auctions (formally English open auctions) is well known. For independent private values the dominant strategy is to bid up to your own value and then drop out. This still holds if the house has a ‘common value’ and ‘private value’ element but there is no private information about the common value. If there is private information about the common value then life becomes more interesting as it is possible to learn through the bidding process.
This is pretty much standard first year graduate student stuff – and is often introduced in advanced undergrad courses.
Even better was the comment from “scientist and science commentator Dr Karl Kruszelnicki” who
feels it is too “deep a topic” to give an easy answer. “It would take me hours to work that out,” he says.
Good to know that it would only take him ‘hours’ to work out the last 50 years of auction theory including the stuff that won William Vickery the 1996 Nobel Prize in Economics! But wait – sometimes common sense prevails where formalism fails:
There’s one rule for those going into an auction to buy a house or apartment, says the ABC’s expert election commentator, Antony Green. “Work out before you go what the value of the property is and don’t go over that,” he says. “No one should pay more than it’s really worth. That’s not rational.”