application of game theory in google adwords bidding
TRANSCRIPT
GOOGLE ADWORDS
BIDDINGROHIT KUMAR
GOOGLE ADWORDS• Online advertising service• Enables competition among advertisers• Brief advertising rights on google and
their partner web pages• Based on pre-defined keywords• Links to web page content
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TYPE OF AUCTION
Second price auction• Closed bids• Winner pays just enough to beat the competition• Bid price and quality parameters used for evaluation• Winner decided based on ad rank
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SECOND PRICE AUCTION
• Players bid for a good• Sealed bid• Winner decided based on ad rank – considers bid price and quality of the ad content• Highest bidder wins, but pays the second highest bid
Example:Say bids for a product are A=$100, B=$90, C=$ 80, D=$70So here, A wins the bid, but need to pay just $90
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AD RANK CALCULATION
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STRATEGIESIf you were the loser:You can decrease the bid • And lose again and receive nothing
OrYou can increase the bid, where • You still lose and receive nothing• Or win, but end up paying more than valued
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If you were the winner:You increase the bid • Still win and pay the same as before (second highest bid)
OrYou decrease the bid and• Still pay the same second highest bid price • Or lose and get nothing
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CONCEPTS • Asymmetric – payoffs change with players• Incomplete information – players have private information• Weakly dominant strategy – payoff at least as high as any other strategy• Weakly dominated strategy – all other strategies apart from the weakly
dominant one
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STRATEGY-PROOF • Each player playing their weakly dominant strategy by revealing their private
information• Truthful or dominant-strategy-incentive-compatible (DCIS)• Type of incentive compatible: DCIS & BNIC• IC – every participant gets best for himself by acting true to his preferences• Bayesian-nash-incentive-compatibility (BNIC) – if all participants are true then
it is best to be true too• Used in second price auctions, VCG mechanism, majority voting etc
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VCG MECHANISM • Vickrey–clarke–groves mechanism• Socially-optimum solution• Select any outcome from a set of possible outcomes• Selects that outcome that maximizes the sum values of all the participants
(total value)• Applied in auctions, public projects, quickest path etc
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SHORTEST PATH
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Thank You