Some of you may know my paper “Investigating the Winner’s Curse Based on Decision Making in an Auction Environment” (in: Simulation & Gaming Issue 47 (2016) No. 3, p. 324 – 345 ISSN: 1552-826X; 1046-8781). If not, have a look and of course cite it as often as you can :-). So, why do I mention this paper and what is the connection to my CETE-Exchange at TU Delft? First, I have to talk about the basics of this research. The majority of bidding models focuses on the mark-up decision. Despite a large body of literature, particularly related to the construction industry, these bidding models largely ignore human behavior. The aim of this research was two folded. Firstly, I wanted to contribute to the potential use of business games to study the results of auction behavior in a construction business environment (games as a research tool). Results of this can be employed in industry context as well as in educational context. The second aim was to investigate the winner’s curse and its effects on individual companies and the market at all. The methodology for this study was rooted in game theory. The reasoning which leads to the winner’s curse is explored through a behavioral multi-actor experiment. For this, I developed a database-driven, online multiplayer auction game which served as a laboratory experiment (for details refer to this web page).
Due to the fact, that the used auction environment is based on the common bidding method for construction projects; the ‘reverse’ auction low-bid method, I wanted to investigate bidding behavior in different auction settings. It could be the second-price sealed-bid auction (Vickrey auction) or the descending price auction (Dutch auction). During the use of the online simulation I realized, that if I would like to focus solely on studying the auction behavior and to address this in educational contexts, the rest of the game would be unnecessary, e.g. the components that are needed to manage the company in a competitive environment as well as to manage different construction projects. Therefore, a reduction is strongly recommended.
Since 2015/16 I was not able to invest further efforts in this direction. Nevertheless, I developed a basic concept of an auction game together with Prof. Dick Teach in 2012 during my stay at the Georgia Tech Center for International Business Education & Research, which has been a really good exercise for further developments in my construction simulation game (Dick mainly inspired me to conduct research on auctions and decision making processes). And now the circle closes. The discussions with colleagues during my CETE-exchange and the pleasing coincidence that Dick also participated in the ISAGA 2017 has encouraged me to work further on this concept.
Now comes the nerdy part of the story During two nights I worked further on the existing parts of the online trading game in that far, that it is possible to place bids for several goods. Additionally, traders have a stock and they have stock costs for each good (nothing fancy, but functional). Why so fast? I had to be quick, because I wanted to discuss this first rough version with Dick in any case while he is attending the conference. And I can tell you, the discussion was splendid. We talked about additional implementations and how we could use different auction types. The game play will be very fast and thrilling for the participants. Within one study group we will be able to conduct a variety of games with different auction types. Further, because of the simplicity of the game, it will be possible to use it on different educational levels, professional, academic as well as in vocational education and training. Honestly, the game is not ready yet to be played with students, but without the support of the CETE-network this concept would have been most likely still in my drawer.
Besides other things, I also worked on this project during my stay at TU Delft. So, I hope to find enough time to work on this project and to bring it into classes of several vocational schools in the future and also to work on a joint publication with Dick. Let´s see what happens. By the way, a day has 24 hours plus the night.
Blog by Dr. Christian Karl