savageinfidel

Like many programs, the Unknown Alma Mater's doctoral program used Varian's Economics text for our Micro Sequence. So, I perk up when I hear Varian's name mentioned. It turns out he's Google's Chief Economist (who knew - Google has a chief economist?). A recent Steven Levy piece in Wired magazine talks about the ways the company uses economic theory (and auction theory in specific) in their Google AdWords program. Here are a couple of snippets: At the time, most online companies were still selling advertising the way it was done in the days of Mad Men . But Varian saw immediately that Google's ad business was less like buying traditional spots and more like computer dating. "The theory was Google as yenta—matchmaker," he says. He also realized there was another old idea underlying the new approach: A 1983 paper by Harvard economist Herman Leonard described using marketplace mechanisms to assign job candidates to slots in a corporation, or student...

Winner's curse is the well-known phenomenon where the winner of an auction is often just the person who's most likely to have overpaid for the item in question. So, often the winner is the loser. Then I heard about Swoopo.com . It's been called "pure distilled evil in a business plan". Here's their setup: Bidding for an item starts at $0.15 Each bid raises the price by $0.15 Bids cost $0.75 to make. Here's the kicker - a bid in the final seconds extends the auction for 15 seconds. So, auctions can go on and on. Of course, they post the "savings" you would receive if you bought the item at the current price as a prod for people to continue betting. They also hold "penny auctions" on their front page - a bid only increments the price by a penny. I recently saw a TomTom GPS sold for about $12. That means 1200 bids at $0.75 per bid, for revenue of $900, on something that costs them between $300 and $500. Not too shabby. This is a b...