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The Products: Each auction consisted of 15 products. These products had static names and activity costs which carried over from auction to auction. However, the values that bidders could have for a product changed each auction, with the range of possible values differing from product to product. Table 3.2 summarizes the activities and possible bidder values for each product. The initial posted price was $2000 for each product at the start of each new auction. The clock increment was set at 10% of the current posted price, rounded to the nearest hundred dollars. Thus, each product’s price incremented as follows:

$2000 → $2200 → $2400 → $2600 → $2900 → $3200 → . . .

Table 3.2: Activity costs and possible nonzero bidder values per product.

Product Activity Cost Value Range

The Bidders: Throughout each session of the experiment, the same six subjects competed with one another over the course of all eleven auctions. Each auction, bidders had nonzero value for exactly eight of the fifteen available products. Each auction, bidders were assigned a new budget in the range of $5000 − $10000. At the start of the first round of each auction, bidders had an eligibility of 500—an amount that allows them to bid on most or all of their valued products. This means that bidders are always budget-constrained during the first round of bidding each period. This decision allowed subjects more autonomy in determining which strategy they wished to pursue.

The Interface: Figure 3.1 contains a sample screenshot of the interface used by subjects for making informed bidding decisions. Most of the information about products and round results was contained within the spreadsheet in the upper left quadrant of the interface. This table contained the following columns:

• Selection: A checkbox which, when selected, specified that the subject was willing to commit to the associated product at the next (“clock”) price.

• Item: The name of the product described by the associated row.

• Activity Units: The activity cost of bidding on this product.

• Current Price: The product’s posted price, which all current holders (if any) were committing to at present.

• Next Price: The product’s clock price, which would be the following round’s current price in the event that there was positive excess demand. This is also the price that bidding subjects were committing to for the next round.

• Profit at Next Price: The amount of profit (in experiment currency) that the bidder stood to earn should they win the product at its next price.

• Excess Demand: The amount of excess demand for the product from the previous round, defined here as

Excess Demand =

( 0 , if demand = 0,

demand − 1 , otherwise.

• Profit Per Activity Unit: The amount of profit that the product would net at the next price for each unit of activity invested into it.

• Profit Per Dollar Spent: The amount of profit that the product would net at the next price for each unit of experiment currency invested into it at the next price.

The final two columns contained information that could be deduced from predecessor columns, and were included as potential optimization tools for the subjects. The table also included aggregate information in the bottom row concerning activity, prices and profits. These aggregates were a function of the currently checked selections. This information was also communicated within the Expected Cost and Activity meters below the table, which were updated in real time as bidders checked and unchecked their selections. The behavior of these meters differed by mechanism, as we discuss shortly. Finally, table rows were highlighted in green to indicate that a bidder was currently holding that product.

When subjects were finished preparing their bidding selections, they pressed the green

“Submit” button to finalize their decisions. After this point, subjects could take no more actions for the round. There was a limited amount of time in which to submit bids, displayed at the top of the interface. If subjects did not submit their selections before the timer reached zero, the auction would behave as if they pressed the submit button with no products selected. The amount of time granted was three minutes for the first round, and decreased by 30 seconds for each subsequent round until reaching a minimum of 30 seconds for round 6 and beyond. Finally, if all six subjects submitted their bids before the clock reached zero, the round immediately concluded and round results were displayed before the next round commenced.

In the example displayed, the bidding options are visible and presented above the green submission button. Subjects were informed of the strategies utilized by each of these options during the instructions. In addition, tool tips reminded the subjects of the optimizations used by each option. When a subject clicked an option, the ensuing strategy calculateed the recommended bidset and checked all of the associated products. However, the option did not submit these bids for the round, and the bidder could continue to make selections as long as time permitted.

Finally, the graphs to the right gave an account of the subject’s bidding history for that auction. The top plot recorded the evolution of the subject’s eligibility (referred to simply as activity units), while the bottom plot recorded the bidder’s (processed) commitment per round. Commitments that exceeded the bidder’s budget and would have resulted in a bankruptcy status were represented by a red bar in this graph.

Between each round, bidders were given updates on the success or failure of bidding attempts. Figure 3.2 shows an example of this summary. These round updates included

• Any failure to increase demand for a product due to lack of activity.

• And failure to reduce demand for a product due to insufficient excess demand (IFA).

• Any failure to provisionally win a product that was successfully bid on (SMR).

• An indication that all requests to increase and reduce demand were successful.

At the end of each auction, a summary of the subject’s auction winnings were displayed, as in Figure 3.3. When a bidder had gone over budget for that particular auction, the products won were still shown, but an additional message indicated that total profits for that period would consequently be equal to zero. Finally, at the end of the experiment, one of the ten regular auctions was selected for payment, and a summary displayed the selected round, as well as potential earnings for all completed auctions, as in Figure 3.4.

Differences Between Mechanisms: The rules under which the auction performed bid processing within the IFA and SMR mechanisms were identical to those used within the simulated auction environment, with the caveat that reserve splits did not occur in the experiment. There were two ways in which the bidder experience with the interface differed with respect to mechanism: in the behavior of the cost bars, and the behavior of the option buttons.

The activity and expected cost bars ignored provisional holdings in the IFA mechanism.

As subjects clicked the boxes associated with their selections, the bars filled up in amounts proportional to the cost of their selections. In both mechanisms, the cost bar assumed the next price for each item—the upper bound on how much the bidder may have been committing with their selections. However, in the case of the SMR mechanism, the activity and expected cost bars always included representations for current holdings. The expected cost for an unchecked held product was equal to its current price. If the bidder chose to select a held product, the expected cost increased slightly—from the current price to its next price—and the activity remained unchanged. This is because the SMR mechanism automatically “charged” the activity cost of held products against the bidder’s eligibility, even if they did not bid on the product again. In both mechanisms, the auction blocked the subject from submitting if their activity total exceeded their eligibility, and displayed a warning if their expected costs exceeded their budget.

Finally, the options differed slightly between the two mechanisms in their selections. The IFA options continued to ignore current holdings, suggesting optimizations over the entire range of products. The SMR options, on the other hand, would never recommend bidding

on currently held products, as they optimized over the space of unheld products under an accordingly reduced budget and eligibility. In particular, a bidder who provisionally won all of the products that they bid on (or held) from the previous round would be advised not to bid on any products whatsoever, since they would have no available activity for unheld items under this circumstance.

Figure 3.1: The bidding interface for the FCC experiment

Figure 3.2: Experiment results summary between two rounds of an auction

Figure 3.3: Results displayed at the conclusion of a mid-session auction

Figure 3.4: Results displayed at the conclusion of an experiment session

The highlighted row indicates which of the ten auctions was chosen at random and includes the payout in dollars that the subject received (not including a 7 dollar show-up payment).