All-pay auction for charity?
While in a standard auction you have to pay your bid only if you win, in an all-pay auction you pay whether or not you win. The standard example is a dollar auction where you’re selling a dollar. Bidding a penny to get a dollar seems reasonable, but someone else then might bid two cents. The bidding can keep going even past a dollar, and the more people fighting for the dollar the more the person selling it makes. Bidding-fee auctions are similar, where each bid you make costs money. You might remember Swoopo? They used to put up ads like “An iPad just sold for $21.32!” not mentioning that the participants overall had spent more than the retail cost of the iPad on bidding fees. Eventually people caught on and they went bankrupt.
In a less scammy vein, however, this is also how competitive prizes work. In the X-Prize teams spent over $100M in competition for a $10M prize. I can’t find an estimate for how much people spent to win the $1M Netflix Prize but when you look at the number of people and number of teams it was probably well above $1M.
Could we use this for charity? Imagine a donor thought two charities were both excellent and had very similar returns, but they knew lots of other people strongly disagreed and preferred one or the other. By offering to donate $X to the charity that received the most in donations, could they move more than $X to the charity of their choice? It might be even better to make the criterion be the most independent donations of at least $Y, because getting more people to donate has value in terms of expected future donations.
(I suggested something similar a few months ago in a comment on my post on donation matching, but hadn’t thought about prizes at the time.)
Something like this exists: https://www.charitytick.com/
Neat! It looks like Charity Tick is a bidding-fee auction site where proceeds (minus some cut) go to charity. The people participating are trying to get an object. I’m proposing having the thing people are bidding on be partial ability to direct a charitable donation.
Feel free to ignore this question if you think it’s tangential to your point, but can you elucidate on why competitive prizes are less scammy than the prior examples?
They’re quite different. The prize association doesn’t get paid anything. When you get down to it, it’s handing out cash. What it does get is a jump in technology being out there.
So, what does it get from the failures? All it gets from the failures is broader spread of alternate techniques. Of course, for the prize association to get any benefit from that, the losing teams need to be getting benefit from them too (barring theft, which can happen, but the losers are still more likely to benefit than not).
Also, strong teams can move directly to a credible winning bid.
In Swoopo, the first movers are essentially guaranteed to lose. Until the rules changed, it was a terrible move to be one of the first bidders, if there were any people around who didn’t use this rule who’d get the auction up into winnable territory for you.
I’m well aware of the merits of such prizes. My question was why they are “less scammy”. The prize association is still soliciting $X of research expenditure at a cost of $<<X, and the difference is borne over the participants. It’s not obvious or necessary that those participants are going to come out ahead. Without second-guessing the participants’ non-pecuniary motives, it’s structurally identical to Swoopo, which is why they both feature as examples in the original post.
As mentioned in my original response, this may very well be tangential to anything the OP (or anyone other than me) thinks is relevant. The value judgement of “scammy” vs. “less scammy” just stood out, and I wanted to query where it came from.
The ones I know about are the X-Prize and the NASA Lunar Lander Challenge. In both cases, the prize helped motivate and secure funding for something that the competitors wanted to do anyway, for their own tech-development purposes. While the amount spent exceeded the prize, the cost to meet the prize goals rather than simply do what they wanted to do anyway was much less (I have no good estimate for how much less).
The prize also helps the companies get investment, since now you have a source of revenue that only has the risk of “a competitor will do it better”, and doesn’t have the additional risk of “we’ll be the best, but no customers will show up”.
The second, third and fourth paragraphs each list a substantial structural difference from Swoopo. That they share one feature isn’t as big.
Do you also oppose matching grants, where the recipient also needs to put in $X to get the money?
I’m not opposing anything. I’m asking why one thing is seen as “less scammy” compared to another. Chances are it was merely a throwaway comment by the OP and has no bearing on anything.
It seems to me like competitive prizes are not scammy because the way they work is well-understood by those involved, whereas bidding fee auctions are generally poorly understood by those involved (or else they’d never make any money).
I don’t want to put words in his mouth, but one might think the ‘purer’ motive made it less scammy.
So if Netflix fleeced a bunch of software engineers out of their money at a rigged poker tournament, then used their ill-gotten gains to instigate a project with the same outcome as the Netflix prize, that wouldn’t be a scam?
The only sensible way I can frame it to have one be “scammy” and the other not is to have the prize-seekers not really caring about the prize, but caring about the edification / signalling / prestige of triumph in a gamified and high-profile problem. This seems credible, but it also offshores some of the benefit of all-pay auctions to another mechanism.
Yes, I don’t think that the motive is important to its being a scam, but I can see how one might think that.
Swoopo failed, but only 2 years after they modified their rules not to be a scam: anything you paid in bids became credit towards the purchase if you bought it from them at the normal price. You could still lose if you ended up bidding more than its cost or you didn’t want to buy it at full price, but the rules they ended up with weren’t as rigged as it seems at first glance.
Anyway, this particular mechanism seems inefficient for charity—it amounts to, ‘whoever donates the most gets a reward’, and most people will figure they wouldn’t donate the most.