{"id":86611,"date":"2020-10-13T13:01:31","date_gmt":"2020-10-13T07:31:31","guid":{"rendered":"https:\/\/factly.forumias.com\/?p=17856"},"modified":"2021-06-25T16:08:36","modified_gmt":"2021-06-25T10:38:36","slug":"expained-the-economics-of-auctions","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/expained-the-economics-of-auctions\/","title":{"rendered":"Expained: The economics of Auction Theory"},"content":{"rendered":"\r\n<p><strong>News: <\/strong>Royal Swedish Academy of Sciences has awarded the 2020 Nobel Prize for Economics \u2014 to Paul R Milgrom and Robert B Wilson for their work on auction theory and new auction formats.<\/p>\r\n\r\n\r\n\r\n<p><strong>Facts:<\/strong><\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li><strong>Auction Theory: <\/strong>It is an applied branch of economics which deals with how people act in auction markets and researches the properties of auction markets.<\/li>\r\n<li><strong>Factors: <\/strong>The outcome of an auction (or procurement) depends on three factors: <strong>a) <\/strong>Auction\u2019s rules or format <strong>b) <\/strong>Highest bid and <strong>c) <\/strong>Uncertainty.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<p><strong>What did the two Nobel Prize winners do?<\/strong><\/p>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li><strong>Robert Wilson: <\/strong>He developed the theory for auctions of objects with a common value \u2014 a value which is uncertain beforehand but, in the end, is the same for everyone.For example, the future value of radio frequencies or the volume of minerals in a particular area.<\/li>\r\n<li><strong>Winner\u2019s Curse: <\/strong>Wilson also explained what the \u201cwinner\u2019s curse\u201d in an auction is and how it affects bidding.<\/li>\r\n<\/ul>\r\n\r\n\r\n\r\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/lh4.googleusercontent.com\/BgijCQotPuCetzJvyqO1Bbuyic4xCrbIUJ1_6jUPGoRnW6Fq2rbgZE9txpMh_tJEDM66HfOKxFTreOMUftALIJsmY_bHDnYT_UiC93Weufa41M5aUug3CLOypWH2H9cPV0vE7HRg\" alt=\"\" \/><\/figure>\r\n\r\n\r\n\r\n<ul class=\"wp-block-list\">\r\n<li>As shown in the illustration, it is possible to overbid \u2014 $50 when the real value is closer to $25. In doing so, one wins the auction but loses out in reality.\r\n<ul>\r\n<li>Hence, the winner&#8217;s curse explains why rational bidders tend to place bids below their own best estimate of the common value: they are worried about the winner\u2019s curse \u2014 that is, about paying too much and losing out.<\/li>\r\n<\/ul>\r\n<\/li>\r\n<li><strong>Paul R.Milgrom: <\/strong>He formulated a more general theory of auctions that not only allows common values but also private values that vary from bidder to bidder.He analysed the bidding strategies in a number of well-known auction formats, demonstrating that a format will give the seller higher expected revenue when bidders learn more about each other\u2019s estimated values during bidding.<\/li>\r\n<\/ul>\r\n","protected":false},"excerpt":{"rendered":"<p>News: Royal Swedish Academy of Sciences has awarded the 2020 Nobel Prize for Economics \u2014 to Paul R Milgrom and Robert B Wilson for their work on auction theory and new auction formats. Facts: Auction Theory: It is an applied branch of economics which deals with how people act in auction markets and researches the&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/expained-the-economics-of-auctions\/\">Continue reading <span class=\"screen-reader-text\">Expained: The economics of Auction Theory<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[3127],"tags":[4173,4174],"class_list":["post-86611","post","type-post","status-publish","format-standard","hentry","category-economy","tag-auction-theory","tag-nobel-prize","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1702879613},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/86611","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=86611"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/86611\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=86611"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=86611"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=86611"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}