Vickrey Bidding Strategy
Here’s the e-mail from Mikkel concerning Vickrey bidding strategy. I’m including my answer, but really want as many listeners as possible to weigh in. Either post your responses as a comment to this blog entry or e-mail us at email@example.com. Your thoughts will be shared on Monday’s 411!
Refining my argument:
First of all, when bidding for free agents, yes, you are looking at true value: True value means ALL things considered – that is, also scarcity, needs, and everything. It doesn’t mean draft day value.
Okay, you bid $14 for a $10 player. Three things can happen:
1) The next-highest bid is higher than $10: I already discussed this in the previous mail. Conclusion: not good.
2) The next-highest bid is lower than $10: You get the player at a discount, but you would have anyway if you had bid $10.
3) The next-highest bid is exactly $10: You either get the player or you don’t, depending on the rules of the league. But it still wouldn’t have been a better idea for you to bid, for example, $11, because then you would lose on the acquisition of the player (since you estimate his value to be $10).
If you’re still not convinced (and it doesn’t sound like it), can you please open a blog post so it can be discussed in detail? Thanks guys!
Mikkel from Denmark
I’m not convinced, Mikkel! Here’s why. I think you’re underestimating the power of competition. Even if you estimate a player’s “true value” to be $10, there’s a good chance you’ll bid a few dollars higher due to the fact that you really want the player. At that moment, you’re looking to make your team better. It’s not going to matter if you pay $14 or even $20. All that matters is whether you give yourself the best possible chance of obtaining him (and keeping him away from your competitors) without ridiculously overspending. And what is “true value” anyway? How do you calculate it? Doesn’t “true value” depend as much on the other league owners’ evaluation of the player as on your own? These are the factors which lead me to prefer a fairly aggressive approach when it comes to Vickrey bidding.
Zach Steinhorn, MLB.com