“William Vickrey”

The economics of uncertainty

In public sales, we know that the final bidder is the one who wins. But at what price? Game theory is a way to resolve this conflict. An hour with Françoise Forges, economics professor at the Université Paris-Dauphine. Everything you need to know on strategic bidding behaviour. The topic, we have to say, is a bit tough, not so easy to swallow: game theory. In other words, the secret life of numbers. Or how to formalise conflictual situations within communities of individuals when they interact, for example, at public sales. How can the strategic behaviour of bidders be analysed, anticipated, or even thwarted? So… In very basic terms, game theory deals with the formal resolution of conflicts. First of all, there’s one name you need to keep in mind: William Vickrey, who in 1961 matched game theory with auction mechanisms for the first time. A winner of the Nobel Prize in Economics, he was recognised for his research contribution to “the economic theory of incentives under asymmetric information”. This was the man who namely theorised on the interaction of strategies used by bidders. Let’s say that here, we flirt with the concept of the “Nash equilibrium” whereby a player cannot modify his or her strategy unilaterally without weakening his or her position. All clear? It may not exactly be straightforward stuff… but understanding it can also pay off… Thanks to game theory, it’s possible, for example, to identify the symmetries at work in auction rooms. Game theory also offers very practical applications for military defence, where the modelling of nuclear dissuasion can prove handy. In short, the field is vast, starting off from the economic sciences and the analysis of competing logics, and spreading to the political sciences, where game theory can apply to electoral jousts. In the social...

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