Chinese auction is a type of the all-pay auction, where the probability of winning depends on the relative size of a participant's bid. [1] The choice of the winner is done by a lottery, whereby the bidders compete for a higher chance of winning. [1]
It is also known as penny raffle , chance auction and tricky tray. [2] [3]
The origin of the name is unknown [1] but is thought to originated from the 19th Century when the term "Chinese" came to be used to mean cheap and described the inexpensive cost of the raffle and prizes. [2] [4]
There is no connection to Chinese culture. [2]
Chinese auctions are usually conducted during charity events for fundraising. [5] Political elections and patent races can be modeled as Chinese auctions, in which the chance of winning is seen as proportional to the amount spent. [6]
Some sources consider the term "chinese auction" as derogatory. [2] [7]
An auction is usually a process of buying and selling goods or services by offering them up for bids, taking bids, and then selling the item to the highest bidder or buying the item from the lowest bidder. Some exceptions to this definition exist and are described in the section about different types. The branch of economic theory dealing with auction types and participants' behavior in auctions is called auction theory.
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The winner's curse is a phenomenon that may occur in common value auctions, where all bidders have the same value for an item but receive different private signals about this value and wherein the winner is the bidder with the most optimistic evaluation of the asset and therefore will tend to overestimate and overpay. Accordingly, the winner will be "cursed" in one of two ways: either the winning bid will exceed the value of the auctioned asset making the winner worse off in absolute terms, or the value of the asset will be less than the bidder anticipated, so the bidder may garner a net gain but will be worse off than anticipated. However, an actual overpayment will generally occur only if the winner fails to account for the winner's curse when bidding.
A raffle is a gambling competition in which people obtain numbered tickets, each of which has the chance of winning a prize. At a set time, the winners are drawn at random from a container holding a copy of each number. The drawn tickets are checked against a collection of prizes with numbers attached to them, and the holder of the ticket wins the prize.
In an auction, bid shading is the practice of a bidder placing a bid that is below what they believe a bid is worth.
The dollar auction is a non-zero sum sequential game explored by economist Martin Shubik to illustrate how a short-sighted approach to rational choice can lead to decisions that are, in the long-run, irrational.
A unique bid auction is a type of strategy game related to traditional auctions where the winner is usually the individual with the lowest unique bid, although less commonly the auction rules may specify that the highest unique bid is the winner. Unique bid auctions are often used as a form of competition and strategy game where bidders pay a fee to make a bid, or may have to pay a subscription fee in order to be able to participate.
Auction theory is a branch of applied economics that deals with how bidders act in auctions and researches how the features of auctions incentivise predictable outcomes. Auction theory is a tool used to inform the design of real-world auctions. Sellers use auction theory to raise higher revenues while allowing buyers to procure at a lower cost. The confluence of the price between the buyer and seller is an economic equilibrium. Auction theorists design rules for auctions to address issues that can lead to market failure. The design of these rulesets encourages optimal bidding strategies in a variety of informational settings. The 2020 Nobel Prize for Economics was awarded to Paul R. Milgrom and Robert B. Wilson "for improvements to auction theory and inventions of new auction formats."
A multiunit auction is an auction in which several homogeneous items are sold. The units can be sold each at the same price or at different prices.
A first-price sealed-bid auction (FPSBA) is a common type of auction. It is also known as blind auction. In this type of auction, all bidders simultaneously submit sealed bids so that no bidder knows the bid of any other participant. The highest bidder pays the price that was submitted.
In economics and game theory, an all-pay auction is an auction in which every bidder must pay regardless of whether they win the prize, which is awarded to the highest bidder as in a conventional auction. As shown by Riley and Samuelson (1981), equilibrium bidding in an all pay auction with private information is revenue equivalent to bidding in a sealed high bid or open ascending price auction.
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