
Johann Wolfgang von Goethe, Amateur Auction Theorist - pepys
http://www.themillions.com/2016/05/johann-wolfgang-von-goethe-amateur-auction-theorist.html
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ikeboy
On eBay, bidding the highest you're willing to pay is not always optimal,
because bids are not sealed, and other bidders may not be putting in their
highest value, and there's a specific time it ends. Only the highest bid at
any time is sealed.

If your opponent would bid, say, $500, but it's currently at $400, they might
only put in a bid for $425, and if you bid more than that right before it ends
you can get it for $430. While if you'd bid $475, then your opponent might
have bid it up to $480, causing you to end up paying more.

Is anyone actually irrational in this scenario? I suppose anyone not using
sniping tools and also not bidding their highest price is, or at least they
could get a strict improvement by doing so. Given that other players aren't
rational, the whole assumptions break down.

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bluedevil2k
The rational bidding strategy on EBay is to always place 1 bid at the maximum
price you're willing to pay. The problem is that humans aren't rational. Some
people place winning the auction higher on their priority list than bidding
within their budget.

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ikeboy
I gave a scenario where that doesn't work. It's only rational if everyone else
does it. If some people won't do it, then by raising the price early you may
induce them to bid higher, which is bad for you.

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bluedevil2k
It's not bad if they bid higher than you - you being a rational person would
know that you'd be unwilling to pay higher than your only placed bid, so you
aren't really "losing" anything

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ikeboy
It's bad if, if you wouldn't have bid so high, you'd have been able to win at
the end with a lower bid than your highest.

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bluedevil2k
A Vickrey auction is much more interesting (and complex) when there are dozens
of bidders, each with their own budget, and multiple products. Then the
solution turns into a profit maximization algorithm, with the highest bidder
not necessarily winning each item.

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tpeo
So Böttiger ratted Goethe out. It's unfortunate that Goethe figured out the
Vickrey auction, but not the principal-agent problem.

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jontas
I see how his agent sharing the contents of the envelope hurt Goethe's attempt
to gather intel for future auctions, but the outcome of the sealed envelope
auction was unchanged, or am I misunderstanding? Goethe had 1000 talers as his
minimum price so no matter what Vieweg offered, so long as it was above 1000
Goethe was never going to make more than that.

For this reason I find the last paragraph of the article confusing:

> Hermann and Dorothea went on to be a bestseller, earning tens of thousands
> of talers for Vieweg and nary a penny more for poor Goethe.

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kencausey
The article clearly states that the purpose (in theory at least) was not
merely to get 1000 talers but to also get a better estimate of the publisher's
perceived valuation of Goethe's work.

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niciliketo
Great example of how auctions can bring benefits to both parties (as long as
you can trust the middle man)

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snorkel
So he used a single bid auction with a hidden reserve, and the sale price
won't exceed the reserve, so the seller either gets the exact price they
demanded or no sale at all.

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ikeboy
All that and they don't tell us how much Vieweg actually bid?

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tpeo
It's right in the end: Goethe's lawyer revealed his reservation price of 1000
talers to Vieweg and he bid just that.

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ikeboy
It doesn't say "he bid just that" explicitly.

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tpeo
Oops, I guess you're right about that. I took the expression "nary a penny
more" to mean "nary a penny more [than 1000 talers]", since I assumed that
Vieweg still bought the manuscript. I see now that this isn't explicit at all.

But Moldovanu & Tietzel (1998) [0] do report in their article that "Vieweg
offered exactly that sum [1000 thalers]". So there it is!

[0]: [https://www.econ2.uni-
bonn.de/pdf/papers/goethes_second.pdf](https://www.econ2.uni-
bonn.de/pdf/papers/goethes_second.pdf)

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ikeboy
Good find!

