Bidding strategies for real-life small loan auctions

Authors:
Lauri Puro;Jeffrey E. Teich;Hannele Wallenius;Jyrki Wallenius
Affiliations:
Aalto University, School of Science and Technology, Department of Industrial Engineering and Management, POB 11000, FI-00076 Aalto, Finland;New Mexico State University, Management Department, New Mexico State University, Las Cruces, NM 88003, USA;Aalto University, School of Science and Technology, Department of Industrial Engineering and Management, POB 11000, FI-00076 Aalto, Finland;Aalto University, School of Economics, Department of Business Technology, POB 11000, FI-00076 Aalto, Finland
Venue:
Decision Support Systems
Year:
2011

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Abstract

We define and identify bidding strategies in real-life small loan auctions (Prosper.com). In such auctions, lenders bid for borrowers' loan listings and the winners get to fund the loan at an interest rate determined by the auction. The exceptionally large empirical database provided by Prosper.com offers a unique opportunity to test and further develop the theory of online auctions. This study shows that bidding behavior is not homogeneous among bidders, as the traditional auction theory suggests. Instead, bidders use many different bidding strategies. Moreover, learning and bidders' consistency over time in different auctions is studied.