Zvika Neeman, an economist at the Center for the Study of Rationality at the Hebrew University of Jerusalem, has now created a mathematical model that simulates the outcome of an auction regardless of the actual valuations that the bidders start with.

Instead, the model is based on knowing bidders’ willingness to pay more, a factor he says can be inferred from things like the background economic conditions. If the economy is good, most bidders will be willing to pay more, and in “bubble” conditions they will be willing to pay a lot more. The model is based on a mathematical technique that physicists use when variables are too difficult to measure.

A first-time seller should choose the English method, says Neeman, since the worst-case scenarios his model predicts for this kind of auction are generally better than those that can happen with other types.

For instance, according to his model, when the seller faces 12 bidders whose valuations are all at least 60 per cent of the highest bidder’s valuation, an English auction (with no reserve price) will generate at least 80 per cent of the highest bidder’s valuation.
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