Thursday, May 10, 2007

Burning Freeways and Blind Bids! (Or: Real Life Auctions)

A week and a half ago a major interchange in the California Bay Area literally melted in a hellish inferno. Following a single-vehicle tanker truck crash, over eight thousand gallons of gasoline lit on fire, resulting in temperatures in excess of 2750° bathing the freeway. The metal frames holding the I-580 overpass together began to warp, and then one segment of the overpass came down in a thundering crash.

As part of the infamous MacArthur Maze (which I pass through every week on a BART train on my way to EndGame and back), the I-580 overpass was a central part of the road system which moved traffic between the East Bay and San Francisco, and suddenly it was gone. Dire predictions were made on the effects on traffic. Thus far, it's apparently been bad, but not terrible thanks to Bay Area companies' willingness to allow employees to telecommute and our decent public transit system.

Nonetheless, the I-580 overpass needs to rebuild and quickly. How can you find the company that could do it the quickest and cheapest? The answer was ... an auction.

Last week Caltrans gave nine construction companies the opportunity to bid on the reconstruction. A bid contract of this type used to be pretty common for government projects in the days before the Bush Administration, and thus isn't really that unusual in itself. As does any good auctioneer, Caltrans also set an expectation: that the total cost should be about $5.2 million dollars.

However, Caltrans also did something unusual: they introduced a very notable time-based kicker. They set the deadline for the work to be June 29, and offered a $200,000 bonus for every day the work finished early, else a $200,000 penalty for every day it finished late.

This Monday the bids came in and the winner was a bid for ... $867,075, which is to say an amazing 17% of Caltrans' cost estimate. The difference was, of course, in that $200,000 a day bonus.

Gaming Caltrans

As a major auction, played out on the local stage, the entire I-580 bid is interesting in itself. We may regularly play games that have auctions at their heart, but they're an important mechanic in real life too ... and sometimes by looking at those real life auctions we can come right back to game design.

To be precise, Caltrans offered a simple sealed auction, with the winner being the low bidder because it was a cost. This in itself is a wide difference from most board game auctions, which tend to use auctions to value goods (high) rather than to cost services (low). The outcome is probably the same, involving a comparison of outlay to return, but I'm surprised more games don't go in this contrary direction just to be different than the Joneses.

As I noted Caltrans cleverly put the expectation out there for what the project should cost. This is a trick also often used by real estate agents, who not only having "asking" prices for the homes they sell, but also tend to quietly mention to buyers how many other people are bidding (and thus "10 other buyers" might be code for "asking price plus $100,000", at least here in the Bay Area).

You tend to see it in games as a minimum bid. Wolfgang Kramer's new Colosseum, which I just played for the first time last week, is an example of a game featuring such a minimum. These minimums tend to tighten up auctions by getting rid of all of the irrelevent bidding at the start, but they also make sure that everyone is bidding in the right ballpark, and thus you don't tend to have quite as lucky of a buyer or a seller--which could otherwise entirely offbalance a game.

And finally we come back to that kicker of $200,000 a day. This is something that I definitely haven't seen in games, and I think it's the thing that could be more interestingly introduced to a game.

Whenever you're playing a good auction game there tends to be some element of risk. You're usually trying to make an adroit guess at the future value of merchandise. Modern Art is one of the most prototypical examples, with people constantly counting possibilities.

("Well, this is the third piece of art out for this painter, so it'll probably place first, but could place second. At first it's worth $50 and at second it's worth $40. Since the next person is also collecting the same artist, they may want to push it to closure, so I'll bet on the $50 valuation, and thus I'll offer an overly generous $40 for it.")

However the I-580 auction game takes things a step further and instead forces the bidders to bet against not future returns, but instead future resource allocation:

("Well, I don't have sufficient workers now, but if I win a worker auction next turn, I'll be able to get them into place just as the steel arrives, though that also requires me to make sure the steel pipelines are open, but given those two elements, we might be able to bring it in a full 30 days under schedule which would give us a $6 million bonus.)

One of the reasons that I find this mechanic interesting is that it could notably define a player's strategy as a game progresses, giving him real goals: benchmarks for success and possibilities for failure.

And it's those successes and failures that make games fun.

So how about someone go and design a kicker-services-auction game?


Anonymous said...

Doesn't any game with investments basically fulfill this criteria?

E.g. train games with stocks, such as Railroad Tycoon? Or Lost Cities?


Anonymous said...

The Garden Gnome Society uses auctions for both value and cost determinations. On your turn, you can either offer one of your gnomes for stud ("What's the most money someone will pay me in stud fees?") or solicit another player's gnome for stud ("What's the least I'll have to pay in stud fees?" It made for an interesting dynamic, certainly. It also made for occasionally confusing discussions, as we weren't always clear about whether we were asking for stud services, or offering them.
-- Dave

Gerald McD said...

That was a creative solution to a tough problem. Hope the contractor does a good job in a short time.

It would indeed be interesting to see an auction game designed with those approaches. The under-deadline/benefit and over-deadline/penality twist could be very challenging. With some limited randomness (as in real life), the game could be kept from becoming a simple mathematical problem to solve, but still allow realistic estimation. Neat idea.

Edmund said...

Contracts like this have been used for quite a while. IIRC, they were used in the repair work on the freeways after the LA earthquake. The same technique was used in Houston on a teardown and rebuild of an elevated section of highway in downtown Houston. One kicker there was that hte company split the early completion bonus with the employees - they got a bonus proportional to the number of hours they worked.

"A bid contract of this type used to be pretty common for government projects in the days before the Bush Administration, and thus isn't really that unusual in itself."

What does this mean? I'm puzzled.

huzonfirst said...

Edmund, I suspect it's a sly reference to Haliburton, although I'm not certain about that.

Smatt said...

Thanks for the current events lesson, Shannon. Great tie-in.

Smatt said...
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