Misapplications Reviews: Getting the Model Right—The Case of Competitive Bidding

The usefulness of a model depends upon how well it captures essential elements of the actual problem. Mismodel the problem, and the conclusions may be wrong. Getting the model right is at least as important as solving the model correctly. In the analysis of competitive bidding, getting the model right has proven difficult. Even seemingly small changes in bidding models may lead to quite different conclusions. Repeatedly, bidding models have proven to be flawed, often with unnerving effects on the conclusions drawn from them. In this guest column, we review several modeling failures documented previously and then present two new examples.