[sotd] The Bidding Game [October 6, 2009]

From: "Site of the Day" <amholm@xxxxxxxxxxx>
To: sotd@xxxxxxxxxxxxx
Date: Tue, 06 Oct 2009 09:59:21 -0300
        Site of the Day for Tuesday, October 6, 2009

        The Bidding Game

Today's site, from the National Academy of Science's Beyond Discovery series,
dedicated to promoting the concept that scientific research can have useful
benefits which are initially totally unexpected, presents the surprisingly
interesting story of mathematical game theory and how it effected the sale of 
air,
otherwise known as the electromagnetic spectrum used for telecommunication 
devices.
Even Gentle Subscribers without much enthusiasm for math may find the general
principles of game theory, when stripped of those pesky equations, a riveting
topic.

"In July 1994 in the ballroom of the Omni Shoreham Hotel in Washington, D.C., a
most unusual auction was in progress. No famous paintings, valuable coins, or
antique furniture sat on the auction block. For sale was nothing but air: a 
slice
of the electromagnetic spectrum for a new generation of cell phones, pagers, and
other wireless communication devices. The U.S. government had never auctioned
anything so valuable before, and no one knew just what was going to happen. The
Federal Communications Commission (FCC) estimated that the airwave spectrum was
worth about $10 billion, but telecommunications industry leaders scoffed at the
idea that they would pay anywhere near that sum. ... Once bidding launched,
however, prices started rising tens of millions of dollars by the hour, to 
telecom
executives' disbelief and horror." - from the 
website

Designed for the general, non-mathematical public, the article begins with a
summary of what happened at the fateful 1994 auction and then delves into the
background of game theory, beginning with the famous Hungarian mathematician, 
John
von Neumann in the 1920's and his observations about poker that was to 
eventually
relate game theory to economics and specifically to auctions. Additional 
sections
of the presentation cover what type of auction works best to raise as much 
money as
possible, "The Winner's Curse" -- how overestimating the value, and bidding
accordingly, will win the auction but may end up costing the winner more than 
the
item was worth -- and why a particular type of bidding was chosen for that 
famous
auction for the electromagnetic spectrum. Also included are a timeline on the
development of game theory, along with the Nobel prizes garnered by its 
originators
and supplementary resources at the end of each section.

Nip over to the site for a noteworthy presentation on game theory and how it was
used by the U.S. federal government at:

http://www.beyonddiscovery.org/content/view.article.asp?a=3681

  A.M. Holm
<admin-sotd@xxxxxxxxxxxxxx>
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[sotd] The Bidding Game [October 6, 2009]

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