Bargaining and Auctions

by Scott Alexander7 min read15th Jul 201272 comments


Game Theory
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Some people have things. Other people want them. Economists agree that the eventual price will be set by supply and demand, but both parties have tragically misplaced their copies of the Big Book Of Levels Of Supply And Demand For All Goods. They're going to have to decide on a price by themselves.

When the transaction can be modeled by the interaction of one seller and one buyer, this kind of decision usually looks like bargaining. When it's best modeled as one seller and multiple buyers (or vice versa), the decision usually looks like an auction. Many buyers and many sellers produce a marketplace, but this is complicated and we'll stick to bargains and auctions for now.

Simple bargains bear some similarity to the Ultimatum Game. Suppose an antique dealer has a table she values at $50, and I go to the antique store and fall in love with it, believing it will add $400 worth of classiness to my room. The dealer should never sell for less than $50, and I should never buy for more than $400, but any value in between would benefit both of us. More specifically, it would give us a combined $350 profit. The remaining question is how to divide that $350 pot.

If I make an offer to buy at $60, I'm proposing to split the pot "$10 for you, $340 for me". If the dealer makes a counter-offer of $225, she's offering "$175 for you, $175 for me" - or an even split.

Each round of bargaining resembles the Ultimatum Game because one player proposes to split a pot, and the other player accepts or rejects. If the other player rejects the offer (for example, the dealer refuses to sell it for $60) then the deal falls through and neither of us gets any money.

But bargaining is unlike the Ultimatum Game for several reasons. First, neither player is the designated "offer-maker"; either player may begin by making an offer. Second, the game doesn't end after one round; if the dealer rejects my offer, she can make a counter-offer of her own. Third, and maybe most important, neither player is exactly sure about the size of the pot: I don't walk in knowing that the dealer bought the table for $50, and I may not really be sure I value the table at $400.

Our intuition tells us that the fairest method is to split the profits evenly at a price of $225. This number forms a useful Schelling point (remember those?) that prevents the hassle of further bargaining.

The Art of Strategy (see the beginning of Ch. 11) includes a proof that an even split is the rational choice under certain artificial assumptions. Imagine a store selling souvenirs for the 2012 Olympics. They make $1000/day each of the sixteen days the Olympics are going on. Unfortunately, the day before the Olympics, the workers decide to strike; the store will make no money without workers, and they don't have enough time to hire scabs.

Suppose Britain has some very strange labor laws that mandate the following negotiation procedure: on each odd numbered day of the Olympics, the labor union representative will approach the boss and make an offer; the boss can either accept it or reject it. On each even numbered day, the boss makes the offer to the labor union.

So if the negotiations were to drag on to the sixteenth and last day of the Olympics, on that even-numbered day the boss would approach the labor union rep. They're both the sort of straw man rationalists who would take 99-1 splits on the Ultimatum Game, so she offers the labor union rep $1 of the $1000. Since it's the last day of the Olympics and she's a straw man rationalist, the rep accepts.

But on the fifteenth day of the Olympics, the labor union rep will approach the boss. She knows that if no deal is struck today, she'll end out with $1 and the boss will end out with $999. She has to convince the boss to accept a deal on the fifteenth day instead of waiting until the sixteenth. So she offers $1 of the profits from the fifteenth day to the boss, with the labor union keeping the rest; now their totals are $1000 for the workers, $1000 for the boss. Since $1000 is better than $999, the boss agrees to these terms and the strike is ended on the fifteenth day.

We can see by this logic that on odd numbered days the boss and workers get the same amount, and on even numbered days the boss gets more than the workers but the ratio converges to 1:1 as the length of the negotiations increase. If they were negotiating an indefinite contract, then even if the boss made the first move we might expect her to offer an even split.

So both some intuitive and some mathematical arguments lead us to converge on this idea of an even split of the sort that gives us the table for $225. But if I want to be a “hard bargainer” - the kind of person who manages to get the table for less than $225 - I have a couple of things I could try.

I could deceive the seller as to how much I valued the table. This is a pretty traditional bargaining tactic: “That old piece of junk? I'd be doing you a favor for taking it off your hands.” Here I'm implicitly claiming that the dealer must have paid less than $50, and that I would get less than $400 worth of value. If the dealer paid $20 and I'd only value it to the tune of $300, then splitting the profit evenly would mean a final price of $160. The dealer could then be expected to counter my move with his own claim as to the table's value: “$160? Do I look like I was born yesterday? This table was old in the time of the Norman Conquest! Its wood comes from a tree that grows on an enchanted island in the Freptane Sea which appears for only one day every seven years!” The final price might be determined by how plausible we each considered the other's claims.

Or I could rig the Ultimatum Game. Used car dealerships are notorious for adding on “extras” after you've agreed on a price over the phone (“Well yes, we agreed the car was $5999, but if you want a steering wheel, that costs another $200.”) Somebody (possibly an LWer?) proposed showing up to the car dealership without any cash or credit cards, just a check made out for the agreed-upon amount; the dealer now has no choice but to either take the money or forget about the whole deal. In theory, I could go to the antique dealer with a check made out for $60 and he wouldn't have a lot of options (though do remember that people usually reject ultimata of below about 70-30). The classic bargaining tactic of “I am but a poor chimney sweep with only a few dollars to my name and seven small children to feed and I could never afford a price above $60” seems closely related to this strategy.

And although we're still technically talking about transactions with only one buyer and seller, the mere threat of another seller can change the balance of power drastically. Suppose I tell the dealer I know of another dealer who sells modern art for a fixed price of $300, and that the modern art would add exactly as much classiness to my room as this antique table - that is, I only want one of the two and I'm  indifferent between them. Now we're no longer talking about coming up with a price between $50 and $400 - anything over $300 and I'll reject it and go to the other guy. Now we're talking about splitting the $250 profit between $50 and $300, and if we split it evenly I should expect to pay $175.

(why not $299? After all, the dealer knows $299 is better than my other offer. Because we're still playing the Ultimatum Game, that's why. And if it was $299, then having a second option - art that I like as much as the table - would actually make my bargaining position worse - after all, I was getting it for $225 before.)

Negotiation gurus call this backup option the BATNA (“Best Alternative To Negotiated Agreement”) and consider it a useful thing to have. If only one participant in the negotiation has a BATNA greater than zero, that person is less desperate, needs the agreement less, and can hold out for a better deal - just as my $300 art allowed me to lower the asking price of the table from $225 to $175.

This “one buyer, one seller” model is artificial, but from here we can start to see how the real world existence of other buyers and sellers serve as BATNAs for both parties and how such negotiations eventually create the supply and demand of the marketplace.

The remaining case is one seller and multiple buyers (or vice versa). Here the seller's BATNA is “sell it to the other guy”, and so a successful buyer must beat the other guy's price. In practice, this takes the form of an auction (why is this different than the previous example? Partly because in the previous example, we were comparing a negotiable commodity - the table - to a fixed price commodity - the art.)

How much should you bid at an auction? In the so-called English auction (the classic auction where a crazy man stands at the front shouting “Eighty!!! Eighty!!! We have eighty!!! Do I hear eighty-five?!? Eighty-five?!? Eighty-five to the man in the straw hat!!! Do I hear ninety?!?) the answer should be pretty obvious: keep bidding infinitesmally more than the last guy until you reach your value for the product, then stop. For example, with the $400 table, keep bidding until the price approaches $400.

But what about a sealed-bid auction, where everyone hands the auctioneer their bid and the auctioneer gives the product to the highest? Or what about the so-called “Dutch auction” where the auctioneer starts high and goes lower until someone bites (“A hundred?!? Anyone for a hundred?!? No?!? Ninety-five?!? Anyone for...yes?!? Sold for ninety-five to the man in the straw hat!!!).

The rookie mistake is to bid the amount you value the product. Remember, economists define “the amount you value the product” as “the price at which you would be indifferent between having the product and just keeping the money”. If you go to an auction planning to bid your true value, you should expect to get absolutely zero benefit out of the experience. Instead, you should bid infinitesimally more than what you predict the next highest bidder will pay, as long as this is below your value.

Thus, the auction beloved by economists as perhaps the purest example of auction forms is the Vickrey, in which everyone submits a sealed bid, the highest bidder wins, and she pays the amount of the second-highest bid. This auction has a certain very elegant property, which is that here the dominant strategy is to bid your true value. Why?

Suppose you value a table at $400. If you try to game the system by bidding $350 instead of $400, you may lose out  and can at best break even. Why? Because if the highest other bid was above $400, you wouldn't win the table in either case, and your ploy profits you nothing. And if the highest other bid was between $350 and $400 (let's say $375), now you lose the table and make $0 profit, as opposed to the $25 profit you would have made if you had bid your true value of $400, won, and paid the second-highest bid of $375. And if everyone else is below $350 (let's say $300) then you would have paid $300 in either case, and again your ploy profits you nothing. Bid above your true valuation (let's say $450) and you face similar consequences: either you wouldn't have gotten the table anyway, you get the table for the same amount as before, or you get the table for a value between $400 and $450 and now you're taking a loss.

In the real world, English, Dutch, sealed-bid and Vickrey auctions all differ a little in ways like how much information they give the bidders about each other, or whether people get caught up in the excitement of bidding, or what to do when you don't really know your true valuation. But in simplified rational models, they all end at an identical price: the true valuation of the second-highest bidder.

In conclusion, the gentlemanly way to bargain is to split the difference in profits between your and your partner's best alternative to an agreement, and gentlemanly auctions tend to end at the value of the second-highest participant. Some less gentlemanly alternatives are also available and will be discussed later.

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Suppose an antique dealer buys a table for $50, and I go to the antique store and fall in love with it, believing it will add $400 worth of classiness to my room. The dealer should never sell for less than $50

Isn't this the sunk cost fallacy? What the dealer originally paid for the table is irrelevant: what's relevant is the price that he can get for it. If he himself has no other use for it, then he should sell it for the best price he can get, even if he made a mistake in estimating its worth and it turns out that nobody's willing to pay $50 for it.

4AnthonyC8yI think it might be important here that the dealer has to do this many times. Yes, sometimes he will need to take a loss on an item to free up inventory space. But for any particular item, if it doesn't sell it is more likely that the right buyer just wasn't present. If a dealer consistently follows the policy of ignoring his purchase cost, the result is that he goes out of business.
6DSimon8yNo, I don't think this makes sense. The dealer's opportunity to care about how much they paid for the table passed when they bought it. After that, all that matters when it comes to price-setting is how much they think buyers will pay, and any costs related to keeping it stocked
3drethelin8yIt's really hard to know how much any random person will value a given antique, considering the uniqueness of antiques and people. It's really easy to know how much you paid for a given antique. As a heuristic to keep in mind while bargaining "Always sell for more than what you bought for" seems like it would be helpful, even if in the abstract it doesn't seem like it should be important information.
1DanielLC8yIf the dealer has other people he could sell it to, it's an auction, not a bargain.

Somebody (possibly an LWer?) proposed showing up to the car dealership without any cash or credit cards, just a check made out for the agreed-upon amount; the dealer now has no choice but to either take the money or forget about the whole deal.

While I don't remember this specific example anywhere on LessWrong, I actually did this last February. I vaguely recall some of the inspiration being discussions of strategy on LW, specifically the one about removing your car's steering wheel in order to win at the game of "Chicken".

(The rest of the inspiration was that I didn't trust the dealer not to screw with something once I got there, and a strong lack of desire to get into any sort of argument about it.)

How'd they react? Did it work?

The salesperson called me back with an acceptable number, and I bought the car. Essentially it was an ultimatum game and I accepted the offer. I think that the salesperson was afraid of losing the sale, and acted accordingly.

I cannot tell you if I actually got an especially good deal, but I would guess I got a better deal than I would have otherwise, because I'd have been far less likely to walk out on an offer once I'd gone to the trouble of starting paperwork at the dealership -- and they knew it.

[Edited to add: I do not think this would have worked as a cold approach; in this situation, I'd actually visited the dealership twice and test driven different cars with the salesperson, so he had a sunk cost involved. He also knew I was annoyed by games and on one of my visits I walked out when the manager started quoting higher prices than what the salesperson had told me, and which were in fact higher than the nationally advertised price for the car! So, I would guess sunk cost + hungry salesperson (and he did seem hungry for the sale) + established propensity for walking out = much better odds of this working than in any other scenario. Based on my interaction with the price-gouging manager, I am certain he would have rejected my approach out-of-hand if I had been contacting the dealership "cold". Either that, or he'd have simply told me whatever I wanted to hear in order to get me in the door so that pressure could be applied.]

1AspiringRationalist8yGiven the situation, I wonder if you would have had any success saying ok to the number the salesperson called back with and then returning with nothing but a check for less than that amount. How much lower could you have gotten away with?
2MaoShan8yI'd like to see a Tales from a Rationalist Car Dealership story come out of this...

I actually did this last February.

Did it actually work at you expected?

8pjeby9yI'm not sure I had any expectations per se: my primary goal was to not get screwed around with, and it worked beautifully for that.
6gwern9yI remember it on LW: []
5pjeby9ySince I did this in February 2011, that can't be the post I'm referring to. [Edited to add: It may be the one Yvain is referencing, though.]
4SusanBrennan9yIs this [] the post you were thinking of? EDIT: Never mind. I'm pretty sure Gwern got the right one.
0[anonymous]9yHow did it go?
[-][anonymous]9y 18

Suppose an antique dealer buys a table for $50 [...] The dealer should never sell for less than $50

If the dealer doesn't inherently value the table (for more than firewood, etc.) and nobody else in the world values (or ever will value) the table for more than $40, then the dealer should sell for less than $50.

Sunk costs.

8bentarm9yI immediately had the same thought, but on second thoughts, I don't think it's quite as simple as that - remember this isn't the only table the dealer will ever buy, and I'm not the only person he will ever sell a table to. The dealer needs to make a profit in general, and while it might make sense to make a loss on this particular table, it probably doesn't make sense to have the attitude "it's ok if I make a loss on tables that I sell". On the other hand, it's quite possible that the dealer would be better off if he had that attitude, as then he'd buy and sell more tables, and each table might still have a positive expected value. Either way, I think there is something to the idea that the dealer might want to remember what he paid for a table when deciding how much to sell it for.
7[anonymous]9yIndeed, the concept of sunk costs sounds like a specifically CDT one to me, so I wouldn't be surprised if there were scenarios whereas TDT considerations mean that the fact that you know you yourself decided to pay $50 for a table, using the same decision theory as you're using now, is relevant.
2fortyeridania9yPerhaps, but I doubt it. It becomes more important later--when it's time to re-stock. That's whent the dealer should think, "Let's see, I bought the last table for $50 and sold it for $40. This time I won't buy for more than $50." In other words, it should affect the dealer's bargaining with her own dealer, not with the buyer. Edit: I changed the last word in the previous sentence from "seller" to "buyer."
6tgb9yAgreed - a better hypothetical might be "Suppose an antique dealer has a table which he knows he can sell for $50 to another buyer [...] The dealer should never sell for less than $50."
2mfb9y... and we get the situation of BATNA introduced later ;). If the antique dealer is not stupid, he should assume that he can sell the table for at least 50€, otherwise he would not buy it. This assumption might be wrong, but that would be another issue.

I do agree that this introduces the BATNA situation later - but that's so general that I actually can't think of any reason that isn't considered "BATNA" for why the dealer should never accept less than $50. Maybe I just need to open up to more creative situations: the Mafia mob wants to keep table prices up and so threaten to shoot him if he sells it for less than $50; or the government decides that a fixed Table Tax was necessary so that each table was taxed $50 regardless of the price it was sold at; or he wants to signal that his goods are of high quality and so considers any price less than $50 to be too low for his store. Okay, on second thought this has turned into a pretty good example of why I should never say "I can't think of any examples" without at least first trying to think up some examples.

4Alicorn8yUpvoted for this.
3Zaine8yThis often happens to me: "Hmm..." Thinks. "I can't think of anything." Tons of ideas spring to mind.
1Alicorn8ySounds like my thing where I can only locate objects after the ritual of saying "hey where is the".
7TheOtherDave8yWhen I started my current job, I developed the ritual of writing email to the developer whenever I had a question about how code worked. Often, the developer no longer worked for the company, which didn't matter, since I never sent the email anyway. What I found was that I would write emails like "So.. I notice X, and Y, and Z. Which seems like they contradict each other. Of course, it's possible that A is also true, which would explain it, but if A were true I'd expect to see B. Which..." (research) "I do indeed see. So, um, never mind." and delete the email. Eventually I figured out how to have that conversation entirely inside my head, but it took quite a while.
4[anonymous]8yEric S. Raymond and Rick Moen make a very similar point in How to Ask Questions the Smart Way [].
2TheOtherDave8yThat's a lovely essay; thanks for the pointer. I am particularly fond of the framing that among "hackers" the value of a question is presumed to be in what it teaches. The authors don't say this explicitly, but this contrasts sharply with the wider culture in which the value of a question is presumed to be in that it increases the status of the person being asked (whether they can answer it or not). Much of the intercultural communication failure around asking and answering questions can be traced back to that.
3arundelo8yThis is called rubber ducking [].
3TheOtherDave8yI'd never heard that expression, though I was familiar with the technique (with a teddy bear, though, not a duck). That said, I wasn't actually programming at the time, just trying to understand what the code did.
5arundelo8yI think I've seen it explained with a rubber duck more often, but I learned it first with a teddy bear too, probably on page 123 of Kernighan & Pike's"wiener dog book" []:
2TheOtherDave8yYes! That's exactly the anecdote wherein I first learned it.
2Will_Sawin8yWith regards to the Table Tax, what if there are storage costs to the table, so its value unsold is negative?
0Biater9y| The dealer should never sell for less than $50, and I should never buy for more than $400, but any value in between would benefit both of us. | The range is not wrong from just the dealer's perspective. If the exact same table is on sale at the store next door for $10, then the buyer is still making a poor decision buying it for $50 with the first dealer. Of course, if we are talking that in this bargaining game, there is only one seller of tables in the world, and only one buyers, I guess this does not apply. Of course, maybe the buyer would be better off rethinking how much he values the classiness a new table would bring to his dining room.
0Scott Alexander8yOn the one hand, good point. On the other, it does seem like the $50 number plays an important role in negotiations, maybe because of the generalization to a marketplace, where dealers who sell for above $50 continue to be furniture dealers and are generally satisfied with the deal, but dealers who sell for under $50 go out of business. At the very least $50 makes a powerful Schelling point.
0[anonymous]8yNegotiation is impossible in the underwater scenario. (Edited to add: It is impossible for negotiation to result in profit for the dealer. The dealer can negotiate to minimize his loss, possibly by complaining about how much he originally paid for the table. In no event can he convince a buyer to pay $50 or more for a table that they value at $40 or less, assuming a completely idealized scenario.)

I have lamented before the fact that "gentlemanly" (or "gentleman's agreement") is such a useful term with nice specific connotations, and has no gender-neutral.

laments a bit more

Anyway, awesome post, looking forward to these.

8JenniferRM9yI've heard "gentlefolk" used in communities where outright "cultural re-write" for less sexism and racism is tolerated or encouraged (rather than inducing apoplectic sputtering by some of the reactionary participants). Lesswrong, with the semi-regular and un-commented use of spivak [], is one of these places. On the other hand, to my ear, the penumbra of connotation included by "gentlemen's agreement" includes elements of feudal virtue and the glamor of evil, where gentlemen on hard times might become highway brigands rather than shop keepers or farmers, because it would be ignoble to work for a living rather than finding some way to prey on the productive members of society "like a proper gentleman". Legitimate prey, in that era, only vaguely includes women, because women were mostly just "points" rather than players, formally existing as willing or unwilling chattel, rather than official players of the game. The residuum of this era seems to be what relatively sane feminists are talking about when they speak of "the patriarchy [] " and "rape culture [] ". There were exceptional [] women [], but "gentlefolk" doesn't make me think of barely restrained rampaging female nobility, the way "gentlemen" subsumes a historical panoply of somewhat foppish, honor obsessed, sociopathic dukes and princes, who had "always winning at ultimatum games and games of chicken" as the essential business model of their caste. The caste, to persist over time, needed a way to not tear itself completely to shreds through internal squabbling and so develops cultural norms regulating internal strife... hence, a "gentleman's agreement" could occur between its genuine members. Figuring out a
7Will_Newsome9yI'd appreciate links to essays or summat that give a clear-eyed assessment of the extent to which women were or weren't willing or unwilling chattel at various points throughout history. You seem to be referring to background knowledge that I don't have—the only "knowledge" of the history of the lot of women (and the culture of gentlemen) I have comes from clearly ideological narratives. Excepting the classical era, it seems like it'd be difficult for me to find analyses that avoided implicit moralizing and stuck to factual description. I'm especially interested in the lot of women during the High Middle Ages, which I tend to think of as a high-point of civilization. I would be surprised to learn that the lot of women then was as bad as it seems like it was in classical antiquity, or as it seems like it is today in much of the world including many Western subcultures. (Interestingly I notice a small "arguments are like soldiers" effect going on on my part: when you say "yay for progress" you're specifically talking about women's rights, but my brain automatically reached for cached counter-examples to "progress" that have nothing to do with women's rights, and wanted to ask why someone who's studied complex systems and group epistemology is going along with the progress narrative, even though you never actually said nor really implied that you were going along with the progress narrative in general. I hope this is because I care about historiography and not because I've been mind-killed by ideology.) I'm confused that you linked to the Wikipedia section on the influences of the Battle of Jena-Auerstedt. From what it says Prussia's subsequent reforms were primarily military in nature, and the occupation by France only lasted a few years. There doesn't seem to have been substantial cultural reform—(should we expect Prussia to have adopted the leftist norms & ideology of France due to such an ephemeral military occupation?)—and politically the primary consequence see
8Danfly8yMy knowledge of women's history in the high middle ages wouldn't be very good. However, as an Irish archaeologist, I can tell you that the chattel slavery of women in early medieval Ireland was so abundant that a female slave or cumal [] was treated as a unit of currency, being equivalent to 6 to 8 séoit (one of which is equal to the value of a three-year-old heifer). If I were still a student I would be able to find you more academic sources, but I've lost access to most of the journals I used to use. From what I remember, this practice did fall into decline after the arrival of Normans, though this generally attributed to a decline in economic significance rather than a shift in social conscience. If you can access J-Stor, "Lest the Lowliest Be Forgotten: Locating the Impoverished in Early Medieval Ireland" by JW Boyle will provide you with good background on this. I know it's not exactly what you were looking for, but it as an area which I am, to some extent, qualified to talk about.
5Kaj_Sotala8yI've found the Owning Your Shit blog [] to provide interesting alternative views for some of the standard feminist narratives, though unfortunately it doesn't cite any sources and is somewhat ideological as well. Relevant articles for this context might be Can we redefine the terms, please? [] and okay, getting my shit together []. They don't go as far as to discuss the Middle Ages, though.
2RichardKennaway8yI find this an excellent reason to pay it no attention. When I clicked on the links I found my prediction amply confirmed.
7wedrifid9yThe USA elected a representative that wouldn't even declare war after a comprehensive military strike by an enemy? Wow. I would not have expected that.
0thomblake8yThat's at best redundant. They became the enemy due to that particular military strike.
0wedrifid8yNot especially redundant and the "at best" has highly dubious connotations 'at best'. The "comprehensive military strike" is ambiguous without something that indicates whether it is "by us" or "by the other guys". Even apart from that I wouldn't accept as remotely tenable the claim that Japan couldn't be described as an enemy just because active firefights were not in progress, in much the same way that the participants in a cold war cannot be enemies just because the war is cold. Would you really claim that prior to pearl harbor Japan during that war hadn't done anything that threatened American interests such that they couldn't be considered an enemy? Was America really naive enough not to realize that the previous actions of Japan and the positioning of their forces didn't make an enemy, even if it is one that America was until then able to leave to others to fight? Japan certainly didn't think so, or they wouldn't have bothered making a first strike while they were already busy.
4TheOtherDave9yHow would you summarize the difference between the connotations of "gentlemanly" and "civilized"?
7wedrifid9y"Civilized" people aren't allowed to stab you if you break your promises to them.
-1Zaine9yI think I've heard this phrase somewhere before. Would a 'womanly understanding' be the female counterpart of a 'gentleman's agreement'? "We had a womanly understanding not to dress too fancily to the event, and I was glad to see that she wore her hemp necklace instead of her most elegant pearl necklace." A 'tacit understanding' or 'tacit agreement' can be the gender neutral in many instances wherein 'gentleman's agreement' is used, but indeed I don't think the former can denote all that the latter connotes.

Would a 'womanly understanding' be the female counterpart of a 'gentleman's agreement'?

No. The the 'nice connotations' of that phrase are that the agreement can be expected to be kept not because of legal enforceability but due to honor and pride. That is, the 'gentleman' who betrays such an agreement will at best lose social standing (itself a life threatening possibility) and at worst will be challenged to a duel or have his entire family poisoned by assassins.

The 'gentleman' who is betrayed in such a deal feels honor bound to punish the defection even at cost to himself and will himself lose status and credibility if he does not. The "womanly counterpart" for social competition was based on different competitive strategies and was not of the kind that implicitly enforces honesty.

-3Zaine9yPerhaps in fiction and history does what you say of female competition hold true, but I think it might not anymore be so much the case in Western countries. Western countries in the past subjugated women a great deal more than at present, and thus subtle machinations were female's only recourse if they wished to be active agents. As Western Society weakens its dominion over women, and women are granted more social power, the less necessary manipulative dishonest conduct in female to female interactions becomes. I don't think it's inherent to the nature of women to engage in arrangements that they have no intention of upholding - only that doing so is advantageous when all involved parties of the arrangement have low social power anyway: little to lose, a lot to gain. Men in the same situations are just as dishonest. With more social power, the less reason there is back-stab and connive dishonestly. I think it very likely for women to have developed a reputation-backed honor system that enforces 'womanly understandings'. That is what I mean by the term: a relatively new social development that has only become possible through recent societal Enlightenment (in the 17th-18th century sense of the word). It could just as well be a very old development that has only recently been revitalized; I refer to ancient matriarchal societies like the Scythians and Sarmatians.
6wedrifid9yTrying to make this about 'female subjugation' does the subject a gross injustice---discarding all the relevant parts of the particular honesty enforcement cultural dynamic in order to make points on a largely irrelevant gender superiority battle. The actual relevant factor here is that what I said of male competition does not apply in modern societies. People within a specific caste being permitted to or outright socially obliged to challenge each other to duels or to otherwise act in an aggressively vindictive manner when they are betrayed in matters of honor has various positive and negative effects, one of them being that otherwise unenforceable promises have more credibility. Neither males nor females in general western culture are in such circumstances so our 'gentleman's agreements' are limited to comparatively trivial matters. This form of disengagement does not seem to apply in circumstances where there are no particular 'facts of the matter' that are being waited for and no 'resolution of the matter' that would provide clear conclusions either way. That being the case it struck me as out of place posturing.
0Zaine9yYou're right. I was thinking of anecdotes, which aren't facts, and shouldn't be used as highly-valued evidence in most scenarios, like this one. Regardless, it was still posturing; thanks for calling me out on it. My main point wasn't about power imbalances, but the social dynamics influenced by those imbalances. Honor among gentlemen in 17th century England was only important insofar as a man's reputation. Thus, outside of those who may be internally motivated by an honorable system of ethics (like Eddard Stark), reputation was the main factor responsible for enforcing gentlemanly honor. I posit that repuation matters more among those that have a lot to lose, but little to gain: exempli gratia an established criminal or the Earl of Essex. If one has little reputation to begin with, and is of little means, then it is advantageous to connive one's way into more power. As winning glory and honor for their family through battle or refined arts has in the past been largely outside the realm of accepted female activity, conniving was naturally a reasonable course of action. The same would be true of a London mudlark with grand ambitions - regardless of their sex. In our day, honorable conduct in business is critical as often one's reputation will be the deciding factor in whether another will enter into a business arrangement. This is much moreso the case among starting professionals, who might take it as a sign of distrust and be affronted if presented with NDA's and non-compete forms before even hearing the proposal. Positive reputation is largely built up by acting 'honorably'. I think this is equally the case among women now as it is among men. Thus, agreements made and understandings reached that are founded upon that honor might be called gentleman's agreements and womanly understandings. To clarify, the above is why I think using a term such as 'womanly understanding' is sound, and why I think the term represents occurences that have basis in reality. I just
6gwern9yPerhaps this says more about me than other people, but when you wrote 'womanly understanding', I expected it to immediately be broken in some sort of backstabbing way or catfight...
3fubarobfusco9yAnd a gentleman's agreement would be broken and "resolved" through the gentlemanly art of fisticuffs ­— in other words, it really hinges on mutual threat of violence rather than on mutual recognition of benefit? How about we don't gender it at all? If what you want to say is that a particular agreement optimizes for mutual benefit and against various sorts of defection, just say so. We know some game theory around here; and we know that it is frequently applicable to the moral decisions of daily life. No need to drag (ha ha) gender into it at all.
3wedrifid9yNo. The agreement is based on the mutual recognition of benefit. The expectation that each will honor the agreement if made relies on the threat of mutual violence. If there wasn't an expectation of benefit they would not enter into an agreement. (The agreement obliges them to either do something or experience negative consequences so if the agreement offered no expectation of benefit to compensate it would be a bad decision.)
0Zaine9yI did not, and didn't realize that example was a cliche. I changed the example to be contrary to that expectation.
0RichardKennaway8yBut what do you think it connotes? The meaning of "gentleman's agreement" that I grew up with is a tacit agreement of mutual back-scratching, generally to the detriment of those outside the club of insiders. It is not publicly enforceable because it is not publicly acknowledgable, but those on the inside will know when someone defects and discreetly edge them out of the club. It is not to do with honour and pride, in the hurrah senses of those words, but the old boys network. The Wikipedia article ['s_agreement] on the subject defines it pretty much along those lines, and gives some historical background I wasn't aware of.
-2FiftyTwo8y"Honourable" would seem to catch most of the connotations. Eg. "As an honourable man/woman/person I expect them to fulfill their side of the bargain without coercion." It has generally positive connotations but also inferences of old fashionedness and not always taking the best option (e.g. honour before reason). Are there any connotations it is particularly missing?

keep bidding infinitesmally more than the last guy until you reach your value for the product, then stop.

Are you sure it's the best way to auction ? It is if other people have a pre-committed maximal price, which is probably the case for people used to auctions.

But If you go by small increments, isn't there a risk the others will follow with a reasoning similar to the sunk cost fallacy ("I was ready to pay $370 for that, why not $380 ?") ? While if you raise suddenly by a significant amount they'll think "ok, that guy really wants it, I ... (read more)

I have participated in voice auctions for significant sums. I get the impression that the pre-committed maximal price that people think is maximal is often not actually maximal- i.e., even with proxy bidding systems people will bid multiple times on an object, and while the price is climbing many people will alter their impression of how much they're actually willing to bid. Jumping makes the value recalculation more explicit, and can drop some people who will climb a gentle slope past where they would want to go.

It also seems like people read a large number of signals in real-world auctions; tone of voice, time before bidding, and amount raised. Immediately following someone else's bid appears to be a better signal than making large jumps. That said, jumping immediately after someone else's bid appears to be more effective at ending auctions than incremental raises.

The trouble is determining whether that additional effectiveness is worth the cost, as you can jump far past what the other person is willing to spend. I only have anecdotal evidence, and the two that come to mind both make me look good, so take them with a grain of salt. I once followed someone else's $500 raise with a... (read more)

3Kaj_Sotala8yOut of curiosity, what were you bidding on?

Now we're no longer talking about coming up with a price between $50 and $300 - anything over $300 and I'll reject it and go to the other guy.

Shouldn't it be $400 for the first $300 in that sentence ?

neither player is the designated "offer-maker"; either player may begin by making an offer

This is often not the case. It's common that the table will have a price tag on it which the buyer can take or leave. The salesperson isn't authorized to hear a counter-offer. Becoming the offer-maker in all your transactions and using that leverage to buy and sell at a profit without value-add is a viable business model.

I realize this wasn't what your post was about, but the role of offer-makers and offer-takers in commerce is important and often overlooked.

Third, and maybe most important, neither player is exactly sure about the size of the pot: I don't walk in knowing that the dealer bought the table for $50, and I may not really be sure I value the table at $400.

More importantly, the dealer is even less certain about your value of the table, and both of your impressions of the value of the table can be updated due to the evidence of the bids the other party makes (assuming there are social components to the value / other buyers exist somewhere). As well, the seller's fixation on $50 is a sunk cost, as mentioned by STL and Kaj_Sotala.

[-][anonymous]9y 3

"But bargaining is unlike the Ultimatum Game for several reasons. First, neither player is the designated "offer-maker"; either player may begin by making an offer. Second, the game doesn't end after one round; if the dealer rejects my offer, she can make a counter-offer of her own. Third, and maybe most important, neither player is exactly sure about the size of the pot: I don't walk in knowing that the dealer bought the table for $50, and I may not really be sure I value the table at $400."

like dspeyer said, this situation is extremel... (read more)

2TGM9yIsn't this precisely the marketplace situation that was explicitly omitted?
0[anonymous]9yThat is correct, but I was going to explain why I thought the marketplace had taken over bargaining / auctions to see if anyone disagreed or had better ideas.

Somebody (possibly an LWer?) proposed showing up to the car dealership without any cash or credit cards, just a check made out for the agreed-upon amount; the dealer now has no choice but to either take the money or forget about the whole deal.

This isn't entirely true; the dealer could insist that you to go back home and get more money, although it does improve your bargaining position.

I'd been wondering for a while why there seemed to be so few discussions of the Ultimatum Game here - and now here is one - yay!

[-][anonymous]6y 0

All this theory, and I still feel too ashamed/rude to bargain in any shape or form in real life, and constantly shout people things then regret it after the high is gone.

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