Michael H. Rothkopf

Decision Analysis: The Right Tool for Auctions

For bidders in standard sealed bid auctions, I believe that decision theory dominates game theory. Even in the design of auctions, decision theory competes well with game theory. This paper explains why I have reached these conclusions.

Charitable Motives and Bidding in Charity Auctions

Research on bidding in auctions has generally relied on the assumption of self-interested bidders. This work relaxes that assumption in the context of charity auctions. Because understanding charitable motives has important implications for auction design and charities fundraising strategies, this study investigates bidders specific types of charitable motives and the strength of these motives. We carry out three controlled field experiments consisting of real-life auctions conducted on a local Internet auction site. We use a novel design in which we simultaneously run charity and noncharity auctions for identical products and vary the percentage donated to charity. Results show that auctions with proceeds donated to charity lead to significantly higher selling prices, a result due to a higher bidding by bidders with charitable motives rather than to increased bidder entry. We also find that increased prices only occur when the charitable donation is a percentage of the auction revenue, and that a fixed charitable donation associated with each auction has no effect on prices. Furthermore, we find that prices are increasing in the percentage donated to charity. We find considerable support for a model of voluntary shill-like bidding, where charitable bidders try to increase proceeds in charity auctions. We also find that auctions with 25% of revenue donated to charity had higher net revenue than noncharity auctions. Hence, companies may be able to use charity auctions as part of a corporate social responsibility strategy and at the same time increase profitability even though they donate part of the proceeds to charity.

Protocol completion incentive problems in cryptographic Vickrey auctions

Despite attractive theoretical properties, Vickrey auctions are seldom used due to the risk of information revelation and fear of cheating. CVAs (Cryptographic Vickrey Auctions) have been proposed to protect bidders’ privacy or to prevent cheating by the bid taker. This paper focuses on incentive issues for certain CVAs. First, it defines the CVAs of interest and identifies ideal goals for this class of CVAs. One of the criteria identifies an incentive problem that is new to the literature on CVAs, the disincentive of bidders to complete the protocol once they have learned that they lost the auction. Any auction protocol that requires losing bidders to do additional work after learning they have lost the auction must provide the losers with proper incentives to follow the protocol. Second, this paper shows that for a class of CVAs, some losers must continue to participate even though they know they have lost. Finally, it describes two new CVA protocols that solve the protocol-completion incentive problem. Both protocols use bidder-bidder comparisons based on a modified Yao’s Millionaires’ protocol. The first protocol performs O(n2) bidder-bidder comparisons, while the second protocol performs O(n) comparisons.

Information Variability Impacts in Auctions

A wide variety of auction models exhibit close relationships between expected revenue and the second-highest order statistic of bidders expected asset values. Similarly close relationships between the winners expected profit and the expected difference between the highest and second-highest order statistics of bidders information are also common. We use stochastic orderings to see when greater environmental variability of bidders information enhances expected profit and expected revenue.

Bidding behaviors in charity auctions

This paper investigates the importance of bidder types and product types in online charity auctions. Through a large-scale controlled field experiment, the authors identify charitable and non-charitable bidders, and investigate bidding activities in charity and non-charity auctions. Results show that charitable bidders are willing to pay a significant premium in charity auctions, and bid more persistently, continuing to bid in future charity auctions even after losing one. In addition, through the use of a covert agent bidder, this study provides evidence that charitable bidders voluntarily drive up the price in charity auctions, regardless of whether they win the auction. Finally, the authors find that higher value products attain a lower charitable premium relative to their retail value, consistent with diminishing returns to giving.

A Joint Energy and Transmission Rights Auction on a Network with Nonlinear Constraints: Design, Pricing and Revenue Adequacy

The forward and real-time (spot) auction markets operated by independent system operators (ISOs) allow for trade in multiple wholesale electricity products, differentiated by time and location on the transmission network. This chapter presents a general auction model that implements key features of the ISO markets, including definition of several market products, the rules for joint auctioning of the products in a sequence of forward and spot markets, the rules for financial settlement of those products, and the requirements to ensure revenue adequacy of the auctioneer. The model formulation is focused on a joint energy and transmission rights auction (JETRA; henceforth, the ‘auction model’ or ‘auction’), along with a non-linear representation of the transmission network constraints. However, the formulation can be extended, in some cases with modification, to other market products. Our earlier paper (O’Neill et al. 2002) explored properties of this auction with linear transmission constraints.

A joint energy and transmission rights auction: proposal and properties

An auction-based process is proposed that allows power market participants to acquire and reconfigure financial transmission rights. The process simultaneously accommodates flowgate and point-to-point options and obligations, along with energy production and consumption futures. A sequence of auctions is held during which participants can buy and sell rights, culminating in a real-time auction, at which time all rights are cashed out. By allowing flowgate and point-to-point obligations and options to be reconfigured and exchanged, the market can decide what combination of financial rights are most useful to power generators, consumers, and traders. Rights can be exchanged not only for capacity of individual flowgates, but also for more complex transmission constraints, such as nomograms. Under certain conditions, we prove that the auction is revenue adequate for the market operator, in that payments to rights holders cannot exceed congestion revenues. We present a linearized (DC) auction along with a numerical illustration.

Hugh Jordan Miser

Hugh Miser’s career path began as a university professor, but his World War II (WWII) service as a civilian military analyst brought him into the then embryonic field of operations research (OR). Once he was committed to OR, he helped shape this new profession in many important ways. He was a founding member of the Operations Research Society of America (ORSA), served as its secretary and president (1962), as well as the editor of its journal. By his lectures and writings, he was recognized internationally as the conscience of the field—a prime mover whose main concern was the establishment of OR as a science and a profession. He received the Military Applications Society’s Jacinto Steinhardt Memorial Award for outstanding contributions to military OR, ORSA’s Kimball Medal for distinguished service to the society and the profession, and was inducted into the International Federation of Operational Research Societies’ (IFORS) Hall of Fame. He was awarded the U.S. Air Force medal for outstanding and exceptional civil service.