Bidding Decisions with Nonequilibrium Strategic Thinking in Reverse Auctions

Qian, Xin; Fang, Shu‐Cherng; Huang, Min; Nie, Tiantian; Wang, Xingwei

doi:10.1007/s10726-019-09624-7

Cited by 7 publications

(5 citation statements)

References 35 publications

(40 reference statements)

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“…For instance, Adomavicius et al 20 discuss the effect of decision complexity on the outcome of combinatorial auctions using the results of an experiment conducted by college students and find that increasing competition forces bidders to find "loopholes" in the auction to obtain a surplus. Qian 21 considers the decisions of boundedly rational bidders at different levels of thinking in a reverse auction with first-price sealed bids and finds that any bidder with more than two levels of thinking should bid according to the strategy of the second-level bidder to achieve the highest expected profit. Gao 22 , 23 constructed a nonlinear function to portray bidders' regret psychology and solved the equilibrium strategy under bidder regret psychology behavior.…”

Section: Literature Reviewmentioning

confidence: 99%

Boundedly rational bidding decision for land auctions during the transformation of real estate markets

Liao,

Zhang,

Tan

et al. 2023

Sci Rep

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Real estate developers in China exhibit different boundedly rational behaviors when bidding in different land auction formats, resulting in deviation from fully rational bidding, and the transformation of China’s real estate industry has intensified this deviation. To address this problem, this study establishes a reference utility model and a subjective decision probability model under the framework of incomplete information game to characterize developers’ utility distortion and winning probability distortion in open-bid auctions and sealed-bid auctions for land, respectively. The results show that the deviation between bounded rational bidding and fully rational bidding increases as developer competition intensifies. The equilibrium bidding of cost-disadvantaged developers in the boundedly rational model deviates less from the standard model. Moreover, in sealed-bid auctions, the "hiding degree" of cost-advantaged developers is greater, showing size effects, while the bids in open-bid auctions are more complex and affected by market conditions and developers’ risk preferences. Thus, this study characterizes boundedly rational bidding in land auctions and interprets the deviation from fully rational bidding, which can provide a more real basis for land auction mechanism design.

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Section: Literature Reviewmentioning

confidence: 99%

Boundedly rational bidding decision for land auctions during the transformation of real estate markets

Liao,

Zhang,

Tan

et al. 2023

Sci Rep

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“…Myrna 3 finds that bidders' decisions in practice deviate from the equilibrium solution under rational conditions, and explores the dominant strategic factors explaining the deviations using data from agricultural land auctions in Ukraine. Qian 14 considers the decisions of bounded rational bidders at different levels of thinking in a reverse auction with first-price sealed bids and finds that any bidder with more than two levels of thinking should bid according to the strategy of the secondlevel bidder to achieve the highest expected profit. Gao 15,16 constructed a nonlinear function to portray bidders' regret psychology and solved the equilibrium strategy for bidders' regret psychology behavior.…”

Section: Literature Reviewmentioning

confidence: 99%

Bounded Rational Bidding Decision for Land Auction in the Context of Real Estate Economic Transformation and Upgrading

Liao

Zhang

Tan

et al. 2022

Preprint

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Unlike the rapid growth period of China's real estate market, full rational bidding decisions can no longer provide a sufficient theoretical basis for developers’ bidding decisions in land auctions under the transforming and upgrading market. Based on the first-price sealed-bid auction, this paper firstly establishes the standard model where bidders are fully rational, then referring to the research results of behavioral finance, creatively proposes two models under the assumption of bounded rationality of bidders to explain the current situation of the land auction, namely the reference utility model and the Subjective decision probability model. And we analyze the differences between the fully rational assumption model and the bounded rationality assumption models by comparing them. The main conclusions are 1) The assumption of bounded rationality is more consistent with the state of the current market; 2) Land grantors should consider developers' profit margins according to the market background; 3) Under the influence of subjective decisions, the competition of cost advantage developers will intensify while the cost disadvantage developers will be indifferent.

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“…The effectiveness of the proposed approach is demonstrated with numerical experiments. When bidders involve anticipated regret behavior, Qian et al (2017) constructed a novel model based on regret theory. It analyzed the impact of such boundedly rational behavior on the buyer's expected revenue and proposed to use reserve price strategy to mitigate the adverse effect of winner regret.…”

Section: Literature Reviewmentioning

confidence: 99%

“…It analyzed the impact of such boundedly rational behavior on the buyer's expected revenue and proposed to use reserve price strategy to mitigate the adverse effect of winner regret. When bidders engage in nonequilibrium strategic thinking, Qian et al (2016) proposed using the "Level-k decision rule" to model such bounded rationality. Managerial insights were provided for buyers to determine the winner.…”

Section: Literature Reviewmentioning

confidence: 99%

“…With the advent of Internet commerce, reverse auctions have recently become a favorable tool among buying organizations to lower procurement and transaction costs (Tunca et al, 2014. In general, a firstprice sealed-bid reverse auction is frequently adopted to purchase goods and services (Zhou et al, 2016, Qian et al, 2017. In such auctions, bidders are required to simultaneously place bids.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Winner determination problem with loss-averse buyers in reverse auctions

Qian¹,

Huang²,

Yu³

et al. 2017

Front. Eng

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Reverse auctions have been widely adopted for purchasing goods and services. This paper considers a novel winner determination problem in a multiple-object reverse auction in which the buyer involves loss-averse behavior due to uncertain attributes. A corresponding winner determination model based on cumulative prospect theory is proposed. Due to the NP-hard characteristic, a loaded route strategy is proposed to ensure the feasibility of the model. Then, an improved ant colony algorithm that consists of a dynamic transition strategy and a Max-Min pheromone strategy is designed. Numerical experiments are conducted to illustrate the effectiveness of the proposed model and algorithm. We find that under the loaded route strategy, the improved ant colony algorithm performs better than the basic ant colony algorithm. In addition, the proposed model can effectively characterize the buyer's loss-averse behavior.

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Bidding Decisions with Nonequilibrium Strategic Thinking in Reverse Auctions

Cited by 7 publications

References 35 publications

Boundedly rational bidding decision for land auctions during the transformation of real estate markets

Boundedly rational bidding decision for land auctions during the transformation of real estate markets

Bounded Rational Bidding Decision for Land Auction in the Context of Real Estate Economic Transformation and Upgrading

Winner determination problem with loss-averse buyers in reverse auctions

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