Dollar Auction Research Articles

Not the Last Word: Shubik Dollar Auctions and the Infinite Cost of Residency Applications.

Not the Last Word: Shubik Dollar Auctions and the Infinite Cost of Residency Applications.

Analysis of the Interfering Factors about Auction Games

This essay simply explores the complex world of auctions and how they basically work. Start with a brief summary of auction’s history, from the Babylonian era to the present, the essay shows how auctions have evolved over the history. Then, four typical auctions are introduced by listing their rules and how they are played. Most importantly, at the main body, the essay revealed various factors that have impact on how an auction is played, such as sunk cost fallacy, information dynamics, auction rules, and the existence of bidders with distinct motivations. In addition, Candle and dollar auctions are used to show the impact of information and rules on an auction respectively. In the end, the essay argues that auctions are complicated rather than just contests for riches and emphasizes the significance of comprehending these factors. The essay aims to inform people to make wise decisions in both auctions and everyday life.

Rational and Cooperative Strategies in an Arms Race. Conclusions from Empirical Research

Goal – this article describes a proposed model of arms race game and the results of its application in an experiment measuring the inclination of human players to participate in a non-productive competition such as an arms race. Research methodology – methods in this research include: designing a game of an arms race based on a prisoner’s dilemma and one dollar auction, theoretical analysis of strategies to determine the best rational strategy for the player, conducting the experiment in various conditions and comparison between theoretical and empirical results. Score/results – the analysis of various strategies showed that the most rational strategy is the minimum expenditure on armaments to allow effective defense against an adversary. The empirical results showed that players spent significantly higher amounts on armaments than theoretical predictions would have assumed, and 15 out of 26 games did not end close to Nash Equilibrum, which showed that the participants did not play according to rational calculation. The ability to communicate effectively resulted in players being more cooperative. In addition, those who said they played computer games performed better than the others, and finance and accounting students were more likely to choose strategies based on competition. The research supports the thesis that people are inclined to compete even when the competition brings them losses. Originality/value – the proposed game of an arms race is a new model, that can be used to simulate an arms race and to measure rationality of human players. The conducted experiments also provide evidence about human behavior regarding choosing cooperation or competition.

President Putin: A holy mad man or a brave but trapped chicken in Ukraine?

To choose an effective strategy to stop Putin and Russia’s aggressive ambitions in Ukraine and in wider Eastern Europe, Western political and military leaders need to understand his modus operandi and strategic logic. This article focuses on the benefits of game theory in explaining the behavior of the warring parties in Ukraine. It argues that, from an initial “mad man” or a game of chicken strategy chosen by Putin, he has been forced to gradually shift toward a less promising dollar auction model. If the mad man strategy was meant to deter opposing powers from testing Putin’s limits, now the dominant game has locked Putin into a self-driven game with ever higher bids and complications for any exit. For an effective response from the West, the key elements are the Ukrainian will to fight but also the brinkmanship of the West in choosing the right moment to force the Kremlin out of the game.

Strategic Analysis of Dollar Auction

Shubik invented the dollar auction in 1971, which is a straightforward but practical auction model for elucidating the motivations and process of conflict escalation. Later on, several researchers used this paradigm to conduct the study on a variety of subjects. Waniek, for example, investigated the relationship between spitefulness and dollar auction in-depth and presented the optimal decision under different scenarios. In this paper, I simplified his results and merged them into simpler forms. Some proposals that may be advantageous to our economic environment are provided based on the performance.

Central bank swap arrangements in the COVID-19 crisis

Facing acute strains in the offshore dollar funding markets during the COVID-19 crisis, the Federal Reserve (Fed) provided US dollar liquidity to the global economy by reactivating or enhancing swap arrangements with other central banks and establishing a new repo facility for financial institutions and monetary authorities (FIMA). This paper assesses motivations for the Fed liquidity lines, and the effects and spillovers of US dollar auctions by central banks using these lines. We find that the access to the Fed liquidity arrangements was driven by the recipient economies’ close financial and trade ties with the US. Access to dollar liquidity also reflected global trade exposure. We find that announcements of expansion of Fed liquidity facilities or of auctions using these facilities led to appreciation of partner currencies against the US dollar and reduced these currencies’ deviations from covered interest parity (CIP). Dollar auctions by major central banks (BoE, ECB, BoJ and SNB) had spillovers: they led to temporary appreciation of other currencies against the US dollar, reduced CIP deviations, and persistently reduced sovereign bond yields of other economies. However, dollar auctions done by non-major central banks with access to Fed facilities did not have a meaningful impact on key domestic financial variables. The impact of major central bank auctions does not differ by the economies’ financial or trade links with the US or their balance sheet currency exposure, i.e. the major central bank auctions benefitted even the more vulnerable economies.

Surplus dissipating equilibria in the dollar auction

We analyze symmetric subgame perfect equilibria of the dollar auction in its original format, without the modifications that the literature adopts to rule out overbidding in the game. The game has a continuum of subgame perfect equilibria, generating expected revenues that range from zero to the full value of the contested prize. Such multiplicity of equilibria suggests that the overbidding pattern often observed in experiments of this game might be symptoms of coordination failure among bidders, consistent with the rational choice paradigm with no need for behavioral or psychological explanations. The analysis is shown robust to extensions considering: (i) alternative tie-breaking rule that allows for multiple frontrunners, and (ii) preemptive bidding by the frontrunner.

Why it would be strategically rational for Russia to escalate in Kaliningrad and the Suwalki corridor

Russian escalation activities related to the Suwalki corridor and wider Baltic security make a good case for demonstrating how theoretical models could help in terms of damage control in complicated security situations. This is especially true regarding how seemingly rational and morally impeccable options may eventually lead to a painful and costly security dilemma in which the available options become both too costly and publicly unacceptable. In order to grasp the inner workings of the “escalate-to-de-escalate” brinkmanship, the current study analyzes this phenomenon through the lens of the game theory model, “dollar auction,” and a concept of securitization. The aim of the study is to analyze which factors either hinder or support the escalation of tensions between Russia and the NATO Alliance in Kaliningrad and in the Suwalki corridor, and to discuss how far the potential conflict could go should it break out in the future.

The Dollar Auction Game: A Laboratory Comparison Between Individuals and Groups

The aim of this paper is to analyze bidders’ behavior, comparing individuals and groups’ decisions within the dollar auction framework. This game induces subjects to fall prey into the paradigm of escalation, which is driven by agents’ commitment to higher and higher bids. Whenever each participant commits himself to a bid, the lower bidder, motivated by the wish to win as well as to defend his prior investment, finds it in his best interest to place a higher bid to overcome his opponent. The latter mechanism may lead subjects to overbid. We find that the Nash equilibrium of the game is only rarely attained. Second, we detect clean evidence that groups’ decisions are, on average, superior to individuals’ decisions. Learning over time is clearly evident, leading individuals to perform nearly as good as groups in the final rounds of the game.

Competitive escalation and interventions

AbstractCompetitive escalation occurs frequently in managerial environments, when decisions create sunk costs and decision makers compete under time pressure. In a series of experiments using a minimal dollar auction paradigm, we test interventions to prevent competitive escalation. Without any intervention, most people, including experienced managers, escalate and lose money by bidding more than the price is worth (e.g., more than 10 € for 10 €). We test several interventions, in which we provide individuals with different types of experience: direct experience in structurally identical and in structurally similar situations, as well as direct experience in similarly competitive situations (lacking the escalation dimension). We also study indirect experience based on vicariously learning about the situation's consequences (experienced by others) and based on mental simulation by setting oneself a limit regarding where to exit the competition. In 3 experiments (N = 1,229), we find that direct experience in exactly the same or a structurally similar situation allows individuals to prevent subsequent escalation, whereas direct experience in a similar situation without escalation does not. Indirect experience based on vicarious learning successfully reduces competitive escalation, whereas a goal‐setting intervention that has proven instrumental in reducing classic escalation of commitment is not effective. This pattern of variation in the effectiveness of different interventions is consistent with the theory of a hot‐cold empathy gap that prevents people from anticipating how they will experience a competitive situation before entering it. As a methodological contribution, we developed a deception‐free computer‐player dollar‐auction for online participants and a dynamic chicken game.

The Dollar Auction Game: A Laboratory Comparison between Individuals and Groups

The aim of this paper is to analyze bidder’s behavior, comparing individuals and groups’ decisions within the dollar auction framework. This game induces subjects to fall prey into the paradigm of escalation, which is driven by agents’ commitment to higher and higher bids. Whenever each participant commits himself to a bid, the lower bidder, motivated by the wish to win as well as to defend his prior investment, finds it in his best interest to place a higher bid to overcome his opponent. The latter mechanism may lead subjects to overbid. We find that the Nash equilibrium of the game is only rarely attained. Second, we detect clean evidence that groups’ decisions are, on average, superior than individuals’ decisions. Learning over time is clearly evident, leading individuals to perform nearly as good as groups in the final rounds of the game.

The Dollar Auction with Spiteful Players

The dollar auction is an auction model used to analyse the dynamics of conflict escalation. In this paper, we analyse the course of an auction when participating players are spiteful, i.e., they are motivated not only by their own profit, but also by the desire to hurt the opponent. We investigate this model for the complete information setting, both for the standard scenario and for the situation where auction starts with non-zero bids. Our results give us insight into the possible effects of meanness onto conflict escalation.

Evolutionary Games with Sequential Decisions and Dollar Auctions

Conflict occurs throughout the animal world. Such conflicts are often modelled by evolutionary games, where individual animals make a single decision each within the game. These decisions can be sequential, in either order, or simultaneous, and the outcome of the game can depend strongly upon which case is assumed to occur. Real conflicts are generally more complex, however. A fight over a territory, for instance, can involve a succession of different stages and, therefore, choices to be made by the protagonists. In this paper we thus introduce a method of modelling a more complex class of interactions, where each individual can make a sequence of decisions. We show that despite the inherent complexity, under certain assumptions, the resulting game often leads to the case where both animals fight to the fullest extent or where one concedes immediately, thus mirroring the outcomes of simpler single decision games. However, for other cases we see that the outcome is not so simple, and intermediate level contests can occur. This happens principally in cases where the duration of contests is uncertain, and partially governed by external factors which can bring the contest to a sudden end, such as the weather or the appearance of a predator. We thus develop a theory grounded in simple evolutionary models, but extending them in various important ways.

Los precios a través de la economía de la información. Una aplicación entre el peso mexicano y el dólar estadounidense, 2014-2016

In this document, the economics of information theory is used to explain the impact of dollar auctions in the parity between the Mexican peso and the US dollar to the period of January 2014 and March 2016. For this is considered the George Stigler model which explains how the prices are determined in markets with asymmetric information. The results suggest that the strategy of dollar auctions was one of several other factors affecting the price dispersion dollar during the study period.

Selling a dollar for more than a dollar? Evidence from online penny auctions

Online penny auctions, emerged recently, are seen as an adaptation of the famous dollar auction and as “the evil stepchild of game theory and behavioral economics.” In this paper, we use the complete bid and bidder history at such a website to show that penny auctions cannot sell a dollar for more than a dollar in the long run because of bidder learning across auctions and bidder heterogeneity in strategic sophistication. The website we study profited from a revolving door of new bidders but lost money to experienced bidders as a group because of the existence of experienced and strategically sophisticated bidders who profit from the website.

Litigation as a Dollar Auction

Martin Shubik introduced the dollar auction game in a short paper published in 1971 in The Journal of Conflict Resolution. In the original version of Shubik’s game, an auctioneer auctions off a dollar bill (or other fixed prize) to the highest bidder. In addition, both the highest bidder and the second-highest bidder must pay their respective bids to the auctioneer. Scholars have discovered real-life “dollar auctions” in a wide variety of settings, including mergers and acquisitions, free agency in sports, arms races and patent races, international conflict, and even romance. To this list of real-world applications of the dollar auction, we would add civil litigation. Although some commentators have remarked in passing on the possible parallels between civil litigation and the dollar auction game, in this paper we explore this potential connection in greater detail. In particular, we explain the equivalence between placing a bet and making a bid in the context of litigation.

WILL SANCTIONS AGAINST RUSSIA BE SUCCESSFUL: WILL RUSSIA FALL BEFORE UKRAINE?

Current study aims to analyse the Russian-Ukrainian conflict and related economic and political sanctions in the framework of game theory, debate the possible outcomes and to suggest the measures, which could contribute to the successful solution of the conflict. “The chicken dilemma” and “the dollar auction game” have been selected among various models for deeper analyse as matching the starting criteria and possible rational options for conflict endgame. The criteria of success and predicted success scenarios are seen different, but as the authors see it, in theory both Russia and the EU could be motivated to “pull back”. However, their willingness not to “lose the game” is determined in real terms by the “breaking points” that both parties to the conflict would like to avoid.

Coalgebraic analysis of subgame-perfect equilibria in infinite games without discounting

We present a novel coalgebraic formulation of infinite extensive games. We define both the game trees and the strategy profiles by possibly infinite systems of corecursive equations. Certain strategy profiles are proved to be subgame-perfect equilibria using a novel proof principle of predicate coinduction which is shown to be sound. We characterize all subgame-perfect equilibria for the dollar auction game. The economically interesting feature is that in order to prove these results we do not need to rely on continuity assumptions on the pay-offs which amount to discounting the future. In particular, we prove a form of one-deviation principle without any such assumptions. This suggests that coalgebra supports a more adequate treatment of infinite-horizon models in game theory and economics.

A model of a two-stage all-pay auction

The present paper studies a simple two-stage model of an all-pay auction under complete information. All-pay auctions are often used to model competition with irreversible investments such as political lobbying, and in the existing models, the equilibrium outcomes are quite different from the winner-pay auctions (under complete information): The unique equilibrium is in non-degenerate mixed strategies in the sealed-bid all-pay auction, and the highest value bidder wins at (virtually) no cost in the dollar auction. In sharp contrast with those existing models, the equilibrium outcome in the present setting is almost identical to the winner-pay auctions. That is, (a) the highest value bidder wins with probability one, and (b) the revenue of the seller is equal to the second highest value among the bidders. Also, from a mechanism-design point of view, the present game form is more robust than other all-pay mechanisms in that the seller does not need any information about the bidders’ valuations. Although the analysis focuses on the two-bidder two-stage case, the results extend to arbitrary numbers of bidders and stages.

How to prevent competitive escalation in the minimal dollar auction paradigm

Escalation of commitment, the tendency to increase one’s investment in a losing course of action even after negative feedback is well known for its adverse consequences. In this paper, we investigate a situation in which escalation of commitment occurs in the context of competitive settings. Based on Shubik’s (1971) original game, we introduce a ‘minimal’ dollar auction paradigm, which allows us to study competitive escalation in small anonymous groups in the lab. In three experiments, students and experienced executives bid more than 10 CHF for a prize of 10 CHF. In addition, we test two interventions to prevent competitive escalation: a ‘goal setting’ intervention, which has been successful in reducing classic escalation of commitment, is not effective in the competitive situation, whereas a ‘vicarious learning’ intervention prevents escalation successfully. The result is consistent with the assumption/theory of a cold-hot ‘empathy gap’, which impedes individuals from correctly anticipating their experience of the competitive situation before entering it.