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The team used computers at Caltech and the University of Marylandto run a simplified version of the CMS auction and several otherauction types; one, for example, followed more standard rules, withbinding bids and prices set at the lowest bid that did not win,instead of the median of all winning offers. Each auction involved12 or 16 bidders (student volunteers from Caltech and theUniversity of Maryland), who first had to pass a quiz showing thatthey understood how the auctions worked. The volunteers were givenjust one item to sell - a generic "thing" (since the bidders'behavior should be the same in a given auction type, regardless ofthe item being sold) - each at a different cost to them. The Caltech team also examined the effect of other auctionfeatures, such as whether the costs of each item for each bidderare public knowledge and the effect of charging bidders toparticipate. The results, the researchers say, convincingly support critics ofthe CMS auction design. "It's pretty disastrous what the biddersended up doing," Zhang says. In the simulated CMS-type auction,some people bid $0, and the "government" was not able to buy allthe items it needed. The experiments also showed that a standardauction is much more efficient and successful: the government wasable to buy all the items it needed, and the bidders who had thelowest costs were the winners. Using this experimental approach, the researchers were able topinpoint the fundamental problem of the CMS auction design: the tworules. "If you just get rid of one of those two rules, it doesn'thelp - you still have problems," Plott explains. "So you have toget rid of both of them." Last summer, 244 economists and auction experts, including Plottand Caltech professors John Ledyard, Thomas Palfrey, and MatthewShum, signed a letter to urge President Obama to change the CMSauction system; the letter cited the Caltech experiments. In April, however, a study released by the Department of Health andHuman Services reported that the auction saved taxpayers $202.1million in 2011, with no negative effects on health care. Thereport also estimates that the auction will save taxpayers andbeneficiaries $42.8 billion over 10 years. A preliminary analysis of the pilot program by Peter Cramton of theUniversity of Maryland, an outspoken critic of the CMS auction andan economist who was not part of the Caltech study, found that theauction did in fact suffer from the problems predicted by theoryand experiment. Because of the auction design, prices plunged tounsustainable levels, and suppliers dropped out, forcing Medicareto find new suppliers. Cramton also found that the number ofsubmitted claims for equipment declined, which, he says, led toincreased rates of visits to the emergency room andhospitalization. As a result, not only were overall costs higher,but so were health risks. While Plott says he cannot comment on the report without knowingexactly how the study measured and collected its data, he remainsconfident in the experimental results and the theoretical argumentsagainst the auction. "The theory gives a rather clear picture aboutthe implications of the auction architecture," he says. "But onlythe data can tell us how these ideas actually play out in such acomplex application with variables too numerous to be considered inthe theory." Regardless of whether the CMS will continue to expand the auctionor will heed the critics' warnings, this type of research, Plottsays, is a good example for how basic, scientific experiments canhave direct impact on society. He considers that an especiallyimportant lesson for his students. Over the years, he says, severalof his undergraduates have stuck with a project long enough topublish, occasionally leading to several awards and seminal papers."Taking Professor Plott's class was fantastic," Merlob says. "He'sa master experimentalist and an amazing mentor." Zhang, who is doing an independent study in decision-making andneuroscience, will start graduate school in economics at UCLA inthe fall; Merlob, a political science major, is still exploring hisoptions. "This entire experience was pretty awesome," he says."It's probably one of the best of my Caltech career." Additional References Citations. I am an expert from obdspace.com, while we provides the quality product, such as China Odometer Correction Kit , China Auto Diagnostic Code Reader, Car Key Programer,and more.
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