[gshulegaard]

> I actually like Delta's solution the best: they ask you when you check in how much you would accept to get bumped. It's fair and efficient.

This is kind of like a recruiter asking you what your current and expected salary is. I wouldn't call it fair and it is only efficient for the airline which can then use that information to bump customers with the lowest thresholds, maximizing producer (the airline) surplus.

[svachalek]

The typical way to do it is to more or less hold an auction, increasing the offer until enough people take it. Either way the people with the lowest thresholds end up getting bumped. These are the people with the least urgency and/or most need so I don't really see what's unfair about it.

[Qworg]

Hold a reverse auction instead - start high and lower it until you get just enough takers.

[thaumasiotes]

That's a terrible idea. It would be a PR disaster each and every time you tried to do it.

[ghaff]

I can just imagine holding some weird auction that 95% of people are unfamiliar with in a crowded boarding area full of annoyed passengers :-) That will end well.

[RyanCavanaugh]

I've been in boarding areas where this happened. The offer started at $400 and ended up at $1,000 by the time they got enough people to accept. No one was outraged (and I was quite happy to get 2x$1,000 in vouchers in exchange for a minor inconvenience).

[ghaff]

That's not a reverse auction.

A reverse action is offering $2K. More people than we need. OK, how about $1500? Still too many. $1000? OK, right number.

"Wait! You offered us $2K and now you're only going to give us $1K. Lying POSs."

At least that's what I think people are referring to as a reverse auction in this context. I'm not sure if that's a totally accurate description or not.

[thaumasiotes]

Do you really think "The offer started at $400 and ended up at $1,000" matches the description "start high and lower it"?

[mistermann]

Why would you start high, that's going to maximize your cost not minimize.

[koenigdavidmj]

Because people are selfish and might volunteer to get 800 for themselves rather than let some other guy get 1200 (even if 1200 is the legal maximum).

[FabHK]

No, if you start low, people might basically implicitly "conspire" to keep their hands down, and when the first "breaks" the cartel at some high price, all hands will shoot up.

Better to reverse auction until only 4 hands are left. It should end up cheaper (and fairer, incidentally, as it will closer to true preferences)

[ScottBurson]

I guess you think it's unfair because it's like a sealed-bid auction: passengers are required to submit a price without knowing other passengers' prices and with no information as to how badly the airline needs the seats. So most of the time, probably, the airline winds up paying less than it would have under the traditional system.

But in the case we're discussing here, United's offer wasn't sufficient to get them as many volunteers as they needed. So they would have had to pay someone more than usual. Seems like the right outcome to me.

[kelnos]

They ask you at check-in time, not reservation time, so they can't use low bids as a reason to further overbook a flight.

If a flight is oversold, it's oversold. They're going to bump the same customers with the same low thresholds whether they declare those thresholds when they check in or if they wait until they're at the gate.

Sure, there's a psychological difference between making an abstract dollar amount decision at check-in time (when most of the time no bumping will even have to occur anyway) vs. participating in a live auction at the gate (when it's actually a reality), the latter of which might result in higher payouts by airlines, but I don't think that's necessary, and makes the process much more inefficient.

[Asooka]

IIRC that's the proven fairest auction method. Everyone says how much they are willing to pay (in this case to be paid) for the item on auction, then you select the highest(lowest) bidder. People will say the price that best reflects their interest, because going too low would mean you don't get the item, but going too high means you pay more than the item is worth to you.

[scott00]

It depends on what price the auction winners get. If they get the price they bid, it's not optimal. If they all get the price of the most aggressive non-winner it is optimal. It's the difference between a sealed bid first price auction and a sealed bid second price auction. Not sure which way Delta does it.

In practice though, auction theory only works well with high stakes auctions with sophisticated participants (ie, Treasury debt auctions or FCC spectrum auctions). With small stakes and unsophisticated participants, people do crazy stuff, and you need more of a behavioral economics model. (As opposed to a game theoretic model, which is how the standard auction theory stuff works.)

[kelnos]

Why is optimality necessary? (And optimality for whom?) I think all that is necessary is "the people who get bumped feel like they've been compensated fairly".

Unless people blow off the dollar-amount question or later have second thoughts, then people should feel like they've been compensated fairly because they literally told the airline what they believe would be fair compensation. If they provided a bad figure, then really, that's their fault.

If we want to "stick it to the airlines" a bit more and make it equal compensation, then sure, require them to pay all bumped passengers the max bid of anyone who they actually end up bumping. That's not a terrible burden on the airline and is an easy tweak.

[scott00]

Optimality's really never necessary. But it's a good idea sometimes. The two main ways of considering optimality are maximizing revenue and "efficiency". Efficiency is a technical term roughly similar to fairness and the overall good: it tries to measure to what extent auctioned goods go to the participants who most value them.

So going for an optimal auction can be a good idea if you're trying to make the most money possible (many if not most private sector auctions), or to distribute items in an equitable way (lots of government auctions fit this category).

In this particular case, airlines have multiple goals. They want to solve the overbooking for a small amount of money, they want to minimize the time their staff spends dealing with it, and they want to keep their customers happy.

An auction's a good fit for discovering how to keep their customers happy for the least amount of money in an automated way. As to which auction... I don't think theory helps very much here. As I said, theory doesn't work well except in high stakes auctions with sophisticated participants. So you need a behavioral model of your consumers (ie, an understanding of the ways in which they behave irrationally) to figure out a good choice in this case.

[joatmon-snoo]

But customers get to choose their thresholds.

I do see the recruiter analogy, but I think there's one key difference you need to consider: Delta still has to get you on a plane at some point.