Physics – Physics and Society
Scientific paper
2011-05-03
PloS ONE 7, e29910 (2012)
Physics
Physics and Society
36 pages, 30 figures, 5 tables
Scientific paper
10.1371/journal.pone.0029910
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 these auctions do not optimize their financial gain. Indeed, as long as there are many auction participants, a rational profit optimizing agent would choose not to participate in these auction markets.
Amaral Luis A. N.
Baronchelli Andrea
Radicchi Filippo
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