That is the exact opposite of the Liberals’ claim. Bidding rules do matter, but a ban on blind bidding, by making bids visible, leads to higher prices. A more recent economics Nobel Prize was awarded to Stanford University economist Paul Milgrom for studying what happens to bidding in these circumstances. So, if I learn how competing home buyers value the house I’m bidding on, I am reassured that I’m not overestimating the home’s value. That’s not realistic when real estate is being sold: houses can be resold and can also harbour hidden defects. Revenue equivalence requires that the value one buyer attaches to an item up for sale is not affected by how much other buyers value that item. floods expose hollow 'emergency' declarations Matthew Lau: The trouble with Ontario's new auto strategy: It exists.William Watson: Think of it as 1975, eventually voters will tire of big government.Are those assumptions realistic in a setting where homes are bought and sold? If not, would more realistic assumptions give us reasons for optimism? The short answer is no. That baseline economic result certainly provides no basis for claims that banning blind bidding would put a brake on rising home prices.īut because revenue equivalence is a theory, it requires assumptions. Sellers can’t use bidding rules to change the fact that price will adjust to equate demand and supply. One of the first results students of bidding theory learn, the theorem says that bidding rules neither raise nor lower prices paid on average. Recognizing that bids change with bidding rules led to the first really important result in bidding theory: the famous revenue equivalence theorem, a contribution that was one reason Canadian-born William Vickrey won the 1996 Nobel Prize in economics. Wouldn’t such a ban have given all losing bidders, not just you, an opportunity to increase their bids once they learned they were about to lose their dream home? Couldn’t that mean prices might go up even more with a ban on blind bidding? If you bought a home with a $1.1 million bid and the next highest bid was $1 million, it’s simply wrong to believe that a ban on blind bidding would have saved you $100,000. The first thing that economics tells us about bidding is that different rules result in different bids. Plus, the proposed ban ties directly to the remorse of home buyers who buy a home with an aggressive bid only to suspect or even learn later that a lower bid would have been accepted. The idea of banning blind bidding is certainly an attempt to address current frustrations with housing (un)affordability.