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Daniel Doubrovkine on Auctions and bidding: A guide for computer scientists

Daniel Doubrovkine on Auctions and bidding: A guide for computer scientists

There is a veritable menagerie of auctions — single dimensional, multi-dimensional, single sided, double sided, first price, second price, English, Dutch, Japanese, sealed bid — and these have been extensively discussed and analyzed in the economics literature. We will survey this literature from a computer science perspective, primarily from the viewpoint of computer scientists who are interested in learning about auction theory, and to provide pointers into the economics literature for those who want a deeper technical understanding. We'll also take a peek into how the paper was used to build a new online auction platform Artsy.


May 24, 2017

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  1. A Menagerie of Auctions — - Single Dimensional - Multi

    Dimensional - Single Sided - Double Sided - First Price - Second Price - Kth Price - English - Dutch - Japanese - Open-Cry - Sealed Bid - Combinatorial
  2. TOC — - Auction Families - Analyzing Auctions - Abstract

    Process View - Computer Science - Actual Implementation
  3. When were auctions invented? — - Auction = Exchange of

    Money for Goods
 Money ~ 700 B.C. 
 Rome and Greece ~ 5th Century B.C.
  4. Independent Features (Zoology) — - Single dimensional, or 

    - One sided or two sided. - Open-cry or sealed bid. - First price or kth price. - Single-unit or multi-unit. - Single-item or multi-item 
  5. One vs. Two-Sided — - One-Sided: either buyer or seller

    bids - Two-Sided: both sides submit bids
 - The auctioneer decides
  6. Open Cry vs. Sealed Bid — - Open Cry: every

    bidder “hears” bids - Sealed Bid: only auctioneer sees bids
  7. First Price vs. K-th Price — - First Price: winning

    bidder pays the price - Second Price: winning bidder pays the
 underbidder price - … - 16th price? Risk seekers!
  8. Single Unit vs. Multi Unit — - Single Unit: bid

    for a single good - Multi Unit: bid for a set of goods
  9. “English” (or “Silent”) Auction — - A single dimensional, one

    sided, single good, open-cry auction - May have reserve price - Bids are made in ascending order - Auctioneer calls the next bid - Ends when nobody accepts a higher bid or at a given time
  10. “Dutch” Auction — - A single dimensional, one sided, 

    single good, open-cry auction - May have reserve price - Bids are made in descending order - Auctioneer calls the next bid - Ends when someone accepts a bid 
 or at reserve 18
  11. “Japanese” Auction — - A single dimensional, one sided, single

    good, open-cry auction - May have reserve price - Bids are made in ascending order - Auctioneer calls increasing bids - Bidders indicate that they drop out - Auction ends when there’s a single bidder
  12. “Vickrey” Auction — - Second price, silent - Bidder is

    free to bid max - Possible trouble maximizing seller revenue
  13. “Double Auction”, “Call Market” or “Clearing House” — - Ask

    = a request from someone to buy a good from the asker at a price - Bid = a request from a buyer to buy a good from the seller at a price - Offer = a general term for a “bid” or an “ask” trade price = k · bid price + (1 − k) · ask price
  14. Multi-Dimensional & Multi-Attribute Auctions — … although auctions with side

    constraints on overall assignments can be cleared in polynomial time using network flow algorithms, when the demand is indivisible, assessing an optimal allocation becomes computationally intractable and requires solving np-hard optimization problems such as the generalized assignment problem, the multiple knapsack problem and the bin packing problem…
  15. Concerns — - Efficiency: achieve allocation of money and goods

    that maximizes the total value of all participants
 - Optimality: maximizing the revenue of the bid taker
  16. Auction Models — - Independent private values model - Correlated

    values model - Almost common values model
  17. Independent Private Values Model — - Many buyers bid for

    a single, invisible object - Each buyer is risk neutral - Each buyer bids up to the private value of the object Dutch and First Price Sealed Bid Auctions are equivalent: a bidder only has one choice, pick a price to bid English and Second Price Sealed Bid Auctions are equivalent: bid up to the value to the bidder this model is Pareto optimal this model gives almost identical revenue to the seller leads to winner’s curse where the winner overpays
  18. Revenue Equivalence Theorem (RET) — - All major types of

    auctions generate the same expected revenue “Assume each of a given number of risk neutral potential buyers has a privately known valuation independently drawn from a strictly increasing atomless distribution, and that no buyer wants more than one of the k identical indivisible objects. Then any mechanism in which (i) the objects always go to the k buyers with the highest valuations and (ii) any bidder with the lowest feasible valuation expects zero surplus, yields the same expected revenue (and results in each bidder making the same expected payment as a function of her valuation).”
  19. Correlated Values Model — - Generalization of the independent private

    values model - Not all buyers have an accurate value of the goods sold - English auction will lead to higher prices than a Second Bid sealed auction - Revealing information will increase prices overall, even if the information is bad
  20. Almost Common Values Model — - Bidders have almost common

    values, but different estimates - A bidder with a higher value will bid more aggressively - Competing bidders with lower value will bid more conservatively, increase winner’s curse - A small information advantage is magnified - There’re advantages to appear aggressive
  21. Generalized Analysis w/ Mechanisms — - Agents - Outcomes -

    Decision rules (efficient or dictatorial) - Transfers - Social choice functions (skip …)
  22. Collusion, lying, and other sharp practice — - Rings of

    bidders, also called “pies” and “kippers” - Bidding “clubs” - Sniping - Bid shielding - Retaliation
  23. Auctioneer (seller) fraud — - Inserting fake bids to raise

    the price of a second bid auction - Fixing commissions - “Shills” or “puffers” - “Book” bids
  24. Abstract Process Model — - Bid call - Ask call

    - Bid collection - Ask collection - Bid retraction - Ask retraction - Winner determination - Clearing - Information revelation - Tie breaking - Stage switch - Closing
  25. Practical Implementations — - Building an English Auction w/ MongoDB

 - Build a Real-Time Auction Engine in Scala using Event Sourcing
  26. Big Questions — - Can automated trading outperform humans? -

    Can a market-based method compute the outcome of a distributed problem?