Vickrey–Clarke–Groves Auction

https://en.wikipedia.org/wiki/Vickrey%E2%80%93Clarke%E2%80%93Groves_auction

by dedalus • 7 years ago

82 34 7 years ago

en.wikipedia.org

This seems needlessly complex. Aside from being an interesting thought experiment, what is the practicality of this style auction?

whymauri3• 7 years ago

The highest bidder pays the second highest bid. Generalized, the k-th highest bidder pays the (k-1)-th bid for some k-th item.

It enforces truthful bidding and is revenue optimal. How is it needlessly complex?

doctorpangloss• 7 years ago

While revenue optimal, growth in retail is eventually driven by psychology, not pricing, since if there’s anything our real economy is good at producing, it’s morons.

denormalfloat2• 7 years ago

It's needlessly complex because it doesn't solve any problems I have or any I have heard of. A simpler auction would still work pretty well, and be more easily understood by participants.

I ask because the only case I can think of this providing any value, it would be too complex. The example would be splitting up the assets after a divorce, where each spouse bids on the parts of the estate. A VCG auction may be more accurate, but what couple or lawyer would agree to use this system? It's too complex.

orijing• 7 years ago

You're describing the generalized second price auction (GSP) which is NOT incentive compatible, which means the optimal strategy isn't to bid truthfully. VCG is.

bertil• 7 years ago

Google selling ad placement in an margin with n slots.

Y_Y• 7 years ago

Imagine a world where Google optimises for "social benefit" rather than revenue (as this algorithm does).

woadwarrior01• 7 years ago

Although famously Google started with VCG auctions and a number of other internet advertising companies also use it as the auction mechanism for selling their ad inventory, Google is now moving to simpler and the more intuitive first-price auctions[1].

[1] https://www.blog.google/products/admanager/simplifying-progr...

bwasti• 7 years ago

I wrote a small piece that might provide some intuition on the usefulness of VCG auctions https://medium.com/@bwasti/mechanism-design-a8ff1b1a7bdd

boldslogan2• 7 years ago

Trying to wrap my head around auctions in an applicable manner.

Say I am looking for a contractor to renovate my house. I don't know the actual cost or the skill of any of the contractors who are applying for the job.

Is it best to say, whoever will give me the lowest price is the person I will choose, and I will pay them the second-lowest price?

_v7gu• 7 years ago

If you think this is needlessly complex, just wait until you see what the betting mechanism of an agent looks like in a 'simple' auction. With strategy-proof mechanisms you just bet with what you know instead of predicting others' sets of information and their inclinations and acting accordingly.

C4stor2• 7 years ago

This style of auction moves the complexity away from the buyer.

In a traditional one-round sealed first price auction, you're trying to guess what everybody else is bidding and bid a penny more. It's incredibly difficult for a buyer to accurately predict that, it leads to bubbles and crashes disconnected from the sold item value since it barely accounts for anything in the reasoning, but it's easy to resolve.

With a second price auction, the buyer only need to know its true price for self, and bid that, which is actually a lot more simple, and allows to bid depending on the actual provided value of items, making sure the prices don't err too far away from the value.

So, it's actually very practical for one turn auctions, which in turn are very practical when you don't want to spend the time to run a multi turn auction with progressive bids.

hdkrgr2• 7 years ago

This is really only true in combinatorial auctions when the set of items is small. In the divorce example (split n items between the two) from the other comment, VCG would require both partners to list their truthful valuation for all 2^n bundles of items.

Since this isn't really feasible in practice, VCG isn't used even in settings, where the complexity of the mechanism would be warranted. (Think cellular frequency auctions, where CCAs or SMRAs are used.)

bluedevil2k3• 7 years ago

These types of auctions are very common when dealing with spectrum auctions (5G for example). As an example, there are 60 MHz of spectrum for sale, and they are broken down into 4 15 MHz blocks. The first stage of the auction will determine which bidders win how many blocks using a clock auction. After the market price per block is established, a 2nd phase of the auction will take place, using the VCG, that allows the winners to price which specific block(s) they want. (Some blocks are better than others...for example if you win 2 blocks, you very much want those to be contiguous, also edge of spectrum blocks are less desirable because they may get interference). The auction ends after this phase, with the winners paying their sum from stage 1 and stage 2.

In fact, I would say this is one of the most common spectrum auction format right now, used throughout the world, the other swapping in a combinatorial for step 2. (The FCC doesn't run this style due to the size of the US, among other factors).

nwah1• 7 years ago

Yep. I've heard VCG or combinatorial auctions proposed as a solution for various problems.

I think it is used for advertising slots, and airline gates, but could be used for logistics brokerages, or unit rentals in skyscrapers.

The wiki article on combinatorial auctions provides examples.

Simple combinatorial auctions have been used for many years in estate auctions, where a common procedure is to accept bids for packages of items. They have been used recently for truckload transportation, bus routes, industrial procurement, and in the allocation of radio spectrum for wireless communications. In recent years, procurement teams have applied reverse combinatorial auctions in the procurement of goods and services.
Combinatorial auctions were first proposed by Rassenti, Smith, and Bulfin (1982), for the allocation of airport landing slots.

https://en.wikipedia.org/wiki/Combinatorial_auction

dedalus• 7 years ago

Google uses this all day multiple millions of times to price their "adsense" ads. This is the basis on which the price and value are quantified to make sure that the general strategy for advertisers is to make sure they bid the "true" price as any other game will increase their counterfactual value thus demoting them

huac• 7 years ago

Google doesn't, Facebook does: https://www.wired.com/2015/09/facebook-doesnt-make-much-mone...

Vickrey–Clarke–Groves Auction

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