Is There an Effective Strategy to Winning Penny Auctions?

Here’s what  user tracie_n_AnCapMan in our forum has to say:

Very Simple – Win it at all costs, any other strategy is mathematically unsound. Yes that is oversimplified, but You must be willing to lose big to guarantee the win. What causes the win? a few things, the aforementioned Volunteers Dilemma is a large cause against the average players who represent the vast majority of users.
at least one cooperates no one cooperates cooperate 0 0
defect 1 -10

as we can see from the above chart the person who is in the lead when the auction comes to a close causes a volunteers dilemma the remaining players must volunteer their bid to save the group. Oddly the winner of this dilemma is the one who does not bid because he saves a bid hence his 1, the person or persons that do bid to save the group gain nothing and the dilemma continues on the next round. If none of the remaining bidders cooperate via a voluntary bid to save the game, the remaining bidders in the volunteers dilemma (all players not in the lead) lose their entire investment the group loses. We have all seen this occur in these auctions when there are 3 – 5 players left with skin in the game. The person with the highest bid waits on the clock for the win, while the remaining 2-4 other bidders wait on each other to bid so that they can save their bid, remarkably most people choose to defect and this is why we see so many last second bids, and why the auction seems to end while everyone is watching.

Against better players the strategy (even if it is unknown by the players) is Hawk-Dove or Snowdrift Game theory. Like 2 cars racing towards each other the player to turn first will lose, the player who does not turn will win. In Penny Auctions when to auto bidding warriors play against each other the outcome has few possibilities one will pull out first, as his bids may take a LARGE hit against the other player. Two, neither player pulls out and both lose alot of money (both cars collide) Three One of the players pulls out late and loses a large amount while the other player loses a large amount (one car turns very late and still sideswipes the other car). In the end in both of these games the winner is the one who in the long run acts the most irrationally. I bet if you asked BidToWin he has over paid for items many times and in huge amounts. I would bet he has had occasion maybe only once so far (but it will happen again) of overpaying retail by over 1000$. He acts the most irrational and therefore will win the auction (which is the only way to make money). You can really see this Hawk Dove/Chicken Game play out when 2 professional type players go up against each other…. both lose one loses “less” by winning.
Swerve Straight
Swerve 0, 0 -1, +1
Straight +1, -1 -10, -10
the above is the math model with 1 being a win -1 being a mild loss and -10 being the ultimate loss of bankroll (this won’t happen in penny auctions as one player is sure to have more money than the other and therefore cannot bet til both players are bankrupt)
Nobel Prize Winner Dr. John Nash studied game theory heavily as it influences alot more than just games, his equilibrium theory is optimal, but only if all players in the game cooperate so equilibrium theory while assuring an even outcome is impossible even if not against the rules

When I played BlackJack for a living 5 years ago, there are many times you must act irrationally. Depending on the count you may hit, split, stand, or double on cards you would never do in basic strategy. Even in basic strategy we do things that are counter intuitive, we hit 16 vs 7 – A the odds of winning that hand are terrible, but we don’t do it to win more, we do it to lose less…

Another part of game theory to study in regards to penny auctions is the old prisoners dilemma. This will occur when 2 big players square off (which is rare). they each have 2 choices with different outcomes that effect them and the other player. If they choose to work in regards only to winning in the long run they will each experience a better outcome. If one chooses to act in interest of their freedom (bankroll) the other will usually not and our first player loses more in the long run, the only way to play this game is to play only to win without thought of cost.

Avoid the big players, unless you are vastly more wealthy
Note the beavior of the degenerates who by midsize buy ins to chase their losses and know that they are not a threat.
Never get into an auction you do not intend to win, It will destroy any psychological edge against the other players.
Always be the most irrational player
Never get stuck in a continuous volunteers dilemma determine at what point you will bet if no one else has and you won’t face the dilemma you will simply be bidding late on purpose and be the irrational one in the game of hawk – dove.

There’s been some lively discussion over on the forum regarding penny auction winning strategies, join in on the discussion.

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6 comments… add one

  • Rob December 28, 2009, 5:01 pm

    But what happens if you decide to be a last second bidder, and ALWAYS bid when the time gets down to 1 sec.? In this case you don't have to worry about the volunteer dilemma becuase you always volunteer. Unless you're going up against a dominator, would you not be likely to win some auctions in this way?

    Reply
    • auctionwatcher December 28, 2009, 5:21 pm

      Hi, Thanks for your comment it is much appreciated please feel free to check out the forum http://www.pennyauctionforum.com and join if you want!

      You can bid at 1 second if you are consistent too, however on some sites there can be lags and one time you might miss it if you hit bid at 1-2 seconds, it really depends.

      Thanks!

      PAW

      Reply
  • spencer April 18, 2010, 5:26 am

    I think it is a mix of both. If you just get on there and bid like crazy then you are showing a very obvious pattern. whenever I see someone doing this I just wait until they have gone through about 10 "back-and-forths" and then I become the volunteer until the whole pattern plays itself out again. eventually you end up falling into the pattern yourself but at that point, the original dove and hawk have lost value in their bids. Since my only bids were "volunteer bids", I have a lot more bids to go before I lose value. I think that in a small auction there are about 3 different phases of dove and hawk. the originals get played out, the middle people are scared, and the last phase is usually people that have been watching the whole thing happen with the occasional rescue.

    Reply
  • John March 16, 2011, 4:05 pm

    Rob, i think bidding at the last second sounds like the ideal thing to do but is VERY RISKY! because you will miss. There could be connection issues, latency or just lack of concentration on the part of the player. But i have used bidder robot to help me with that http://www.bidderrobot.com. its useful in many ways to help stay in for long times.

    I think the best time to play too is when there is very low traffic at nights.

    Reply
  • Angela June 17, 2011, 1:50 pm

    While I admire the theory that never stopping bidding will yield a “win”, I think that a win at all costs strategy could result in spending waaay more than retail for a product. In my opinion, setting a budget is an important and unmentioned step. The strategy that has helped me learn how to win a penny auction can be found at http://www.howtowinapennyauction.com/. But I have to admit that time of day is definitely a factor when picking an auction with a high-probability for a win.

    Reply
  • Snahita October 16, 2011, 2:59 am

    I am new at this and it seems like there are different theories and tricks on how to go about winning.
    I have come across some websites that sell “tips and tricks”, but I am not sure if it’s worth paying for this info, because I don’t know what I don’t know I suppose:-)
    Has anyone actually paid for tips and tricks on winning penny auctions? Do you get more info than in normal forums?
    Thanks

    Reply

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