Bidding as if You've Won Framework
Assuming the outcome
This framework involves assuming that one's bid will be accepted and adjusting the bidding strategy accordingly. It helps to avoid the winner's curse and make more informed decisions.
- Assume the bid will be accepted
- Adjust the bidding strategy accordingly
- Consider the potential consequences of winning
- Assess the potential outcomesConsider the potential consequences of winning, including the potential value of the item or the potential costs.Pro tipUse game theory and probability to inform the assessment.WarningFailing to consider the potential outcomes can result in suboptimal decisions.
- Adjust the bidding strategyAdjust the bidding strategy based on the assumed outcome, taking into account the potential consequences of winning.Pro tipUse the assessment to determine the optimal bid amount and timing.WarningFailing to adjust the strategy can result in overpayment or suboptimal outcomes.
Business acquisition example
A company assumes that their bid for another company will be accepted and adjusts their strategy accordingly, taking into account the potential costs and benefits of the acquisition.
OutcomeThe company makes a more informed decision and avoids the winner's curse.
Failing to consider the potential outcomes
Not considering the potential consequences of winning can result in suboptimal decisions and overpayment.
This concept has been applied in various auction and negotiation settings, including business and real estate.
Source · BOOK
The Art of Strategy: A Game Theorist's Guide to Success in Business and Life