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00:00:00 – 00:22:23
The video explores the significance of auction theory in economics, focusing on the work of Nobel laureates Paul Milgrom and Robert Wilson. It discusses the flaws of traditional auction systems like the English auction and introduces the Dutch auction concept. The importance of understanding private and common values in auctions is emphasized, along with the impact of uncertainties and collusion on auction outcomes. The introduction of the simultaneous multi-round auction format by Milgrom and Wilson is highlighted as an efficient and beneficial method for selling assets. The video concludes by discussing practical applications of this auction format by various entities and the positive impact it has on both buyers and sellers. Additionally, the video briefly touches on financial planning tools like Acorns to help individuals save and invest their money effectively.
00:00:00
In this segment of the video, the focus is on the Nobel Prize in Economics, which is one of the prestigious awards recognizing thought leaders in the field. The transcript delves into the importance of auctions in economics, explaining that they are crucial for building markets and determining the value of items. The winners of the Nobel Prize contributed to auction theory, showcasing how this can lead to better and more efficient economies. The segment also briefly mentions Acorns, a financial planning tool, and emphasizes the importance of having financial goals and a plan to achieve them in investing.
00:03:00
In this segment of the video, the speaker explains that procurement through auctions depends on three main factors: auction rules, the value of the object being auctioned, and uncertainty regarding the object’s value. Adjusting these factors can maximize value. The English auction system, commonly used by auction houses, involves bidding until no one offers a higher price. However, this system may not lead to the seller earning the highest possible price. An example with two bidders for a home illustrates this concept.
00:06:00
In this segment of the video, the speaker discusses the flaws in the English style auction, which typically results in the buyer paying only slightly more than the second highest bidder. They introduce the Dutch style auction as a potential solution, where the price starts high and gradually decreases until a bid is made. However, Dutch auctions are unpopular due to ethical concerns and the lack of emotional engagement. The concept of the “winner’s curse” is introduced, where the winning bidder may realize they overpaid due to lack of information. The Nobel laureates, Paul Milgrom and Robert Wilson, studied auction theory and highlighted that individuals may not always make purely logical decisions in auctions. They found that in competitive auctions, sellers can expect similar prices from both English and Dutch auctions due to information shortfalls. This lack of information can also lead to the winning bidder not getting everything they desired, such as in the case of a developer aiming to profit from developing a property.
00:09:00
In this part of the video, the speaker discusses the concept of private and common values in evaluating assets. Common values refer to the market price an item would sell for, whereas private values are subjective to individual buyers based on personal preferences or circumstances. The video explains how an entrepreneurial investor may offer well above the common value for a property if it aligns with their future development plans. However, uncertainties and anti-competitive behaviors in auctions can impact the outcomes for all parties involved, highlighting the complexities of bidding processes in the market.
00:12:00
In this segment of the video, bidding collusion in auctions is discussed. The scenario involves developers colluding to manipulate auction outcomes by one bidder backing off in exchange for a payoff, enabling the other to win at a lower price. While such collusion is illegal in most countries, it can be difficult to track. Collusion is risk-free for buyers as they can simply wait for the next auction. Auctions with few interested parties facilitate collusion, resembling an oligopoly where collusion is possible. The video highlights that auctions, especially for complex public assets, have evolved from simple transactions for sellers to maximize price to more strategic distributions by governments since the mid-1990s.
00:15:00
In this segment of the video, the importance of effective auction formats in selling assets like mine sites is discussed. The example of designing an efficient auction for radio frequency bands is used, emphasizing the need to balance private and common value components. Milgrom and Wilson proposed a new format, the simultaneous multi-round auction, where bidders post bids silently and can outbid each other until one round concludes with no further bids. This format aims to achieve efficient allocation while maximizing taxpayer benefit and preventing monopoly scenarios in the cell phone network industry.
00:18:00
In this segment of the video, the speaker discusses the benefits of using simultaneous multi-round auctions for selling assets, emphasizing how it ensures buyers only purchase assets they want at a price they are willing to pay. This auction format minimizes corruption and collusion, increases competition among bidders, and reduces stress compared to traditional auction methods. The practical applications of this auction format have been implemented by businesses like Octonomics, and government agencies like the FCC, resulting in significant revenue generation. The segment highlights how Nobel laureates like Milgram and Wilson have contributed valuable insights to improve auction mechanisms, benefiting both buyers and sellers in society.
00:21:00
In this segment of the video, it is explained how you can link your debit or credit card to your Acorns account to start saving. Acorns rounds up your transactions to the nearest dollar and invests the spare change into a diversified portfolio. Recurring investments allow automatic additions to your portfolio. Acorns also offers a checking account with a metal debit card that saves and invests as you spend, with no overdraft fees or minimum balance requirements. Smart deposit feature lets you allocate a percentage of your paycheck towards savings and investments. Acorns has fee-free access to over 55,000 ATMs globally. You can sign up at acorns.com/ee to receive a $5 deposit into your portfolio.