Rationality, irrationality and escalating behavior in lowest unique bid auctions
Filippo Radicchi, Andrea Baronchelli, Luis A. N. Amaral

TL;DR
This paper investigates online lowest unique bid auctions, revealing that agents use Levy flight strategies similar to animals searching for scarce resources, and that rational profit-maximizing behavior suggests non-participation when many agents are involved.
Contribution
It introduces a quantitative model showing agents adopt nearly optimal bidding strategies but do not maximize profits, highlighting rationality and irrationality in online auction behavior.
Findings
Agents use Levy flight search strategies over three orders of magnitude.
Nearly optimal bidding strategies are employed by agents.
Rational profit maximization discourages participation in large auctions.
Abstract
Information technology has revolutionized the traditional structure of markets. The removal of geographical and time constraints has fostered the growth of online auction markets, which now include millions of economic agents worldwide and annual transaction volumes in the billions of dollars. Here, we analyze bid histories of a little studied type of online auctions --- lowest unique bid auctions. Similarly to what has been reported for foraging animals searching for scarce food, we find that agents adopt Levy flight search strategies in their exploration of "bid space". The Levy regime, which is characterized by a power-law decaying probability distribution of step lengths, holds over nearly three orders of magnitude. We develop a quantitative model for lowest unique bid online auctions that reveals that agents use nearly optimal bidding strategies. However, agents participating in…
Peer Reviews
No public reviews on file for this paper yet. If you reviewed it on a platform where reviews are public (OpenReview, ICLR, NeurIPS, ICML), you can paste yours below so the community can read it here.
Videos
No videos yet. Explain this paper in a talk, walkthrough, or lecture? Add one.
