How is SEO like the dollar auction game
SEO, or search engine optimization, is the practice of improving a website's visibility and ranking on search engines like Google. The goal of SEO is to make a website more visible and easily found by users, which can help to drive more traffic to the site.
The dollar auction game is a game theory scenario in which two players bid on a dollar. The player who bids the highest amount wins the dollar, but they must pay the amount they bid. For example, if Player A bids $0.50 and Player B bids $0.75, Player B wins the dollar but A must still pay the $0.50.
This creates a very interesting dynamic. Player A is incentivised to bid $0.76, which makes player B's logical move to bid $0.77 and so on. The dollar will end up costing a lot more than $1 when it ends. For example, when player A bids $1, as player B still has to pay the $0.99, it's in player B's interest to bid $1.01.
SEO can be compared to the dollar auction game in the sense that both involve competition and the potential for high rewards but the losing player has to pay all the costs. Paying all the costs bit is what is important. If you go after a term and don't rank, you still have paid all the costs but do not get the ‘dollar'
Strategies for the dollar auction game.
The optimal strategy for playing the dollar auction game can vary depending on the specific circumstances of the game and the players involved. In general, however, a good strategy is not to play. Your rewards are capped at a dollar but your costs can spiral out of control.
With SEO, this explains why a lot of good SEOs don't actually do their own sites nowadays. Its a zero sum game and even if you win, the rewards might not cover the costs. Maybe a decade ago, it was worth it as there was less competition but nowadays, running your own little niche site is unlikely to be profitable. If you do run a profitable niche site in 2022 that gets traffic from SEO, then fantastic. It's just that most people, will be playing the SEO version of the dollar auction.
What if you had to play the dollar auction?
If you had to play the dollar auction game, then it's hard to know what to do as it depends on what others do and the bidding order. If you bid first, I think that bidding $1.20 is best as it almost guarantees no one will bid. You lose 20c but its capped and you win the auction.
Another strategy would be to bid 99c or $1. Logically, no one else should bid against you but you never know. Someone might not have thought it through and bid $1.01. You are in a bidding war then.
What you don't want to do is bid $0.75. This is almost asking someone to bid $0.80 and thus getting into this bidding war.
In the classroom
You can read many anecdotes about how high bidding gets when the game is played in the classroom. For example, its often played with a $20 bill.
As the highest offer began to reach $20, people dropped out and as soon. As someone bid $20, the person who had bid $19.50 wanted to cut their losses and bid $20.50 to have a profit of $0.50 rather than a loss of $19.50. Between these people, this continued, even past $40. With one person offering $41, they would lose $21 but the person offering $40 would lose $40. Thus, this escalated until $67 until one person accepted defeat and just dropped out. The professor suggested that both students could pay up or he could just put the $20 bill back in his pocket and we could forget anything happened. Of course, as both players were at a loss, they wanted to just forget about it.
Conclusion
The best way to play the dollar auction game is not to play, that's similar to the SEO game. That's why its best to be a consultant, software vendor or provide a related service. You get paid whatever, whereas your client takes on the risk of not “winning the auction” but also gets all the rewards.
You can learn more about game theory by completing this Yale course on it
https://oyc.yale.edu/economics/econ-159
Its saves you paying the $60k a year tuition doing it online.
Ben has a BEng (Hons) in Computer Science and 20 years of experience in online marketing, specialising in SEO, lead generation and affiliate marketing. After spending over a decade as an igaming affiliate, he has decided to concentrate on GA4 training and SEO Audits.
