(DownSub - Com) The Ideal Auction - Numberphile

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<TextSample sampleTime="00:00:00.003" text="'so an auction is a method of price'"></TextSample>
<TextSample sampleTime="00:00:02.043" text="'discovery a
method of figuring out what'"></TextSample>
<TextSample sampleTime="00:00:04.026" text="'someone's gonna pay for an item and'"></TextSample>
<TextSample sampleTime="00:00:06.015" text="'who's gonna get it so if I've got
a'"></TextSample>
<TextSample sampleTime="00:00:07.092" text="'coca-cola to
sell and I've got six'"></TextSample>
<TextSample sampleTime="00:00:10.053" text="'people who want
it who's gonna get that'"></TextSample>
<TextSample sampleTime="00:00:12.036" text="'coca-cola and
how much are they gonna'"></TextSample>
<TextSample sampleTime="00:00:13.080" text="'pay and any sort
of mechanism in which'"></TextSample>
<TextSample sampleTime="00:00:15.084" text="'the potential
buyers express desire in'"></TextSample>
<TextSample sampleTime="00:00:19.092" text="'some way and then that turns into both a'"></TextSample>
<TextSample sampleTime="00:00:22.047" text="'price and a
determination of who gets it'"></TextSample>
<TextSample sampleTime="00:00:24.060" text="'we call that an auction the Latin root'"></TextSample>
<TextSample sampleTime="00:00:26.031" text="'of auction came from to increase
and'"></TextSample>
<TextSample sampleTime="00:00:28.083" text="'your kind of
standard auction says we're'"></TextSample>
<TextSample sampleTime="00:00:31.074" text="'gonna let
competition push the price up'"></TextSample>
<TextSample sampleTime="00:00:34.053" text="'and until one person is left standing
so'"></TextSample>
<TextSample sampleTime="00:00:39.030" text="'probably the most important
factor is'"></TextSample>
<TextSample sampleTime="00:00:41.013" text="'price discovery
I don't know what this'"></TextSample>
<TextSample sampleTime="00:00:43.008" text="'item is worth
you have paintings for'"></TextSample>
<TextSample sampleTime="00:00:45.069" text="'sale and no one
really knows you know'"></TextSample>
<TextSample sampleTime="00:00:48.030" text="'what the value
of those paintings is'"></TextSample>
<TextSample sampleTime="00:00:49.053" text="'pretty much determined by what people'"></TextSample>
<TextSample sampleTime="00:00:50.082" text="'are willing
to pay for them it
would be'"></TextSample>
<TextSample sampleTime="00:00:54.018" text="'a really a
frustrating thing if when I'"></TextSample>
<TextSample sampleTime="00:00:55.074" text="'went to buy shampoo in the grocery store'"></TextSample>
<TextSample sampleTime="00:00:57.051" text="'I had to go bid
on it and wait and
well'"></TextSample>
<TextSample sampleTime="00:00:59.088" text="'let other people
bid all the while'"></TextSample>
<TextSample sampleTime="00:01:01.083" text="'waiting for my
shampoo and so we'"></TextSample>
<TextSample sampleTime="00:01:04.032" text="'typically
wouldn't run auctions when we'"></TextSample>
<TextSample sampleTime="00:01:06.057" text="'have enough of
the supply that we're'"></TextSample>
<TextSample sampleTime="00:01:08.007" text="'pretty sure we
can sell to everybody and'"></TextSample>
<TextSample sampleTime="00:01:10.008" text="'we have a good
enough sense of the price'"></TextSample>
<TextSample sampleTime="00:01:12.024" text="'of the value
that there's no need to run'"></TextSample>
<TextSample sampleTime="00:01:15.036" text="'through a price
discovery method how'"></TextSample>
<TextSample sampleTime="00:01:16.089" text="'come we know the price of shampoo but
we'"></TextSample>
<TextSample sampleTime="00:01:18.090" text="'don't know the
price of the Mona Lisa in'"></TextSample>
<TextSample sampleTime="00:01:22.041" text="'essence this
they can make more shampoo'"></TextSample>
<TextSample sampleTime="00:01:24.054" text="'at roughly
the same cost so that we
can'"></TextSample>
<TextSample sampleTime="00:01:26.091" text="'have as much shampoo as we need if
we'"></TextSample>
<TextSample sampleTime="00:01:29.040" text="'need 10% more
shampoo that's not a'"></TextSample>
<TextSample sampleTime="00:01:31.092" text="'problem for the
shampoo manufacturer so'"></TextSample>
<TextSample sampleTime="00:01:35.034" text="'as a result
while there could be a'"></TextSample>
<TextSample sampleTime="00:01:37.053" text="'shortage and you see this often if'"></TextSample>
<TextSample sampleTime="00:01:39.084" text="'there's a storm coming people come in'"></TextSample>
<TextSample sampleTime="00:01:42.045" text="'they buy all the
stuff off the shelves'"></TextSample>
<TextSample sampleTime="00:01:44.013" text="'that would be a time where whether'"></TextSample>
<TextSample sampleTime="00:01:46.032" text="'there's gonna be people who go without'"></TextSample>
<TextSample sampleTime="00:01:47.088" text="'as a result you
might think about'"></TextSample>
<TextSample sampleTime="00:01:49.083" text="'holding an
auction now let me say most'"></TextSample>
<TextSample sampleTime="00:01:52.011" text="'states have
laws that prevent sellers'"></TextSample>
<TextSample sampleTime="00:01:54.042" text="'from holding
an auction in that'"></TextSample>
<TextSample sampleTime="00:01:55.077" text="'circumstance
though they're not allowed'"></TextSample>
<TextSample sampleTime="00:01:57.075" text="'to take
advantage of people who
are in'"></TextSample>
<TextSample sampleTime="00:01:59.097" text="'some sense desperate you know otherwise'"></TextSample>
<TextSample sampleTime="00:02:01.053" text="'you know you can
go if you need ten'"></TextSample>
<TextSample sampleTime="00:02:03.045" text="'bottles of
shampoo you go buy 10 bottles'"></TextSample>
<TextSample sampleTime="00:02:05.031" text="'of shampoo the
grocery store doesn't run'"></TextSample>
<TextSample sampleTime="00:02:06.081" text="'out probably
the most popular auction is'"></TextSample>
<TextSample sampleTime="00:02:09.030" text="'called an oral
ascending auction you see'"></TextSample>
<TextSample sampleTime="00:02:12.000" text="'it in movies
where somebody'"></TextSample>
<TextSample sampleTime="00:02:13.078" text="'tugs their
ear and they buy a Ming Vaz'"></TextSample>
<TextSample sampleTime="00:02:15.082" text="'by accident the
item is put on for sale'"></TextSample>
<TextSample sampleTime="00:02:18.025" text="'there's a minimum bid perhaps or a
low'"></TextSample>
<TextSample sampleTime="00:02:20.086" text="'bid that the auctioneer starts with
and'"></TextSample>
<TextSample sampleTime="00:02:23.005" text="'then they start with this chatter
going'"></TextSample>
<TextSample sampleTime="00:02:24.058" text="'do I have $10 we
have $20 I got $20 do I'"></TextSample>
<TextSample sampleTime="00:02:27.046" text="'have $30 or $30
and so on and they the'"></TextSample>
<TextSample sampleTime="00:02:30.025" text="'price
rises until at some point
there's'"></TextSample>
<TextSample sampleTime="00:02:32.086" text="'only one bidder
who's willing to bid at'"></TextSample>
<TextSample sampleTime="00:02:35.026" text="'that price and
that is no one is willing'"></TextSample>
<TextSample sampleTime="00:02:37.048" text="'to
go up any more sometimes
called the'"></TextSample>
<TextSample sampleTime="00:02:39.070" text="'English
auction which is common in'"></TextSample>
<TextSample sampleTime="00:02:41.059" text="'England but it's
actually common around'"></TextSample>
<TextSample sampleTime="00:02:43.036" text="'the world as a
method of auctioning I'"></TextSample>
<TextSample sampleTime="00:02:45.049" text="'believe it was
used as far back in time'"></TextSample>
<TextSample sampleTime="00:02:47.047" text="'as
the Babylonians this auction has
been'"></TextSample>
<TextSample sampleTime="00:02:49.042" text="'around a really
long time sealed bid'"></TextSample>
<TextSample sampleTime="00:02:52.048" text="'auction in this case bidders say here
is'"></TextSample>
<TextSample sampleTime="00:02:55.048" text="'my head they
write it on an envelope'"></TextSample>
<TextSample sampleTime="00:02:57.055" text="'those envelopes
are all open'"></TextSample>
<TextSample sampleTime="00:02:59.017" text="'simultaneously
the high bidder wins and'"></TextSample>
<TextSample sampleTime="00:03:01.066" text="'they pay their bid sometimes
that's'"></TextSample>
<TextSample sampleTime="00:03:03.019" text="'called a pay as
bid auction sometimes'"></TextSample>
<TextSample sampleTime="00:03:05.098" text="'usually with a word seal bid
and'"></TextSample>
<TextSample sampleTime="00:03:08.026" text="'sometimes it's called a first price'"></TextSample>
<TextSample sampleTime="00:03:09.091" text="'meaning the high
bidder paid the high'"></TextSample>
<TextSample sampleTime="00:03:12.043" text="'bid typically
it's governments that use'"></TextSample>
<TextSample sampleTime="00:03:14.095" text="'sealed bids much more common to be'"></TextSample>
<TextSample sampleTime="00:03:16.090" text="'government
sometimes large corporations'"></TextSample>
<TextSample sampleTime="00:03:19.000" text="'will also use
sealed bid the beauty of a'"></TextSample>
<TextSample sampleTime="00:03:21.088" text="'sealed bid relative to an
English'"></TextSample>
<TextSample sampleTime="00:03:23.068" text="'auction is that
it's hard for the'"></TextSample>
<TextSample sampleTime="00:03:26.008" text="'auctioneer themselves to cheat so
our'"></TextSample>
<TextSample sampleTime="00:03:28.075" text="'big concern with
the government holding'"></TextSample>
<TextSample sampleTime="00:03:30.058" text="'an auction is
that the government'"></TextSample>
<TextSample sampleTime="00:03:32.071" text="'officials might collude with one of the'"></TextSample>
<TextSample sampleTime="00:03:34.042" text="'bidders if the government official
did'"></TextSample>
<TextSample sampleTime="00:03:37.018" text="'that there would be a paper trail that'"></TextSample>
<TextSample sampleTime="00:03:40.009" text="'allows it to be
audited when I was at'"></TextSample>
<TextSample sampleTime="00:03:41.092" text="'the Department
of Justice a bitter'"></TextSample>
<TextSample sampleTime="00:03:43.078" text="'submitted a bid
that contained copies of'"></TextSample>
<TextSample sampleTime="00:03:47.017" text="'all their rivals bids in the
same'"></TextSample>
<TextSample sampleTime="00:03:49.033" text="'envelope and so
we were able to show'"></TextSample>
<TextSample sampleTime="00:03:51.043" text="'really easily
that the bidders'"></TextSample>
<TextSample sampleTime="00:03:53.038" text="'themselves were
colluding with each'"></TextSample>
<TextSample sampleTime="00:03:55.015" text="'other'"></TextSample>
<TextSample sampleTime="00:03:55.069" text="'price-fixing
it's against the law the'"></TextSample>
<TextSample sampleTime="00:03:57.076" text="'bidder had inadvertently submitted
a'"></TextSample>
<TextSample sampleTime="00:03:59.074" text="'copy of the rivals bids which
they'"></TextSample>
<TextSample sampleTime="00:04:01.042" text="'shouldn't have
been able to see'"></TextSample>
<TextSample sampleTime="00:04:03.074" text="'Dutch auction sometimes called a
tulip'"></TextSample>
<TextSample sampleTime="00:04:06.035" text="'auction is well
known for being used in'"></TextSample>
<TextSample sampleTime="00:04:08.072" text="'the Dutch tulip
auctions it's an oral'"></TextSample>
<TextSample sampleTime="00:04:10.088" text="'auction that is
it's used with an'"></TextSample>
<TextSample sampleTime="00:04:12.095" text="'auctioneer and
all the bidders assembled'"></TextSample>
color="#CCCCCC">together and it starts high
and then'"></TextSample>
<TextSample sampleTime="00:04:17.066" text="'runs low if
we're selling tulips
we'll'"></TextSample>
<TextSample sampleTime="00:04:20.057" text="'say is anybody willing to pay $10,000'"></TextSample>
<TextSample sampleTime="00:04:23.015" text="'we're we're
pretty sure that no one's'"></TextSample>
<TextSample sampleTime="00:04:24.080" text="'willing to pay $10,000 the price is'"></TextSample>
<TextSample sampleTime="00:04:26.090" text="'successively lowered until someone says'"></TextSample>
<TextSample sampleTime="00:04:28.088" text="'I'll take it and
at that moment it sells'"></TextSample>
<TextSample sampleTime="00:04:31.061" text="'to that bidder
at the price that they'"></TextSample>
<TextSample sampleTime="00:04:33.068" text="'bid from a
theoretical standpoint this'"></TextSample>
<TextSample sampleTime="00:04:36.026" text="'auction is actually identical to the'"></TextSample>
<TextSample sampleTime="00:04:38.048" text="'sealed bid auction and if you
think'"></TextSample>
<TextSample sampleTime="00:04:40.094" text="'about it when you submit a bid in a'"></TextSample>
<TextSample sampleTime="00:04:42.068" text="'sealed bid auction you're thinking well'"></TextSample>
<TextSample sampleTime="00:04:44.096" text="'the other bidders will bid whatever they'"></TextSample>
<TextSample sampleTime="00:04:46.085" text="'bid and I win if
I'm the highest now'"></TextSample>
<TextSample sampleTime="00:04:49.091" text="'imagine yourself
in the position of'"></TextSample>
<TextSample sampleTime="00:04:51.065" text="'bidding in the
Dutch auction you're'"></TextSample>
<TextSample sampleTime="00:04:53.018" text="'saying I have to
choose a bid and when'"></TextSample>
<TextSample sampleTime="00:04:55.079" text="'the price reaches that bid that's the'"></TextSample>
<TextSample sampleTime="00:04:57.053" text="'moment I'm going
to jump in I'm thinking'"></TextSample>
<TextSample sampleTime="00:04:59.026" text="'will
the other one's bid higher than'"></TextSample>
<TextSample sampleTime="00:05:01.073" text="'that in which
case I'll lose but if I'"></TextSample>
<TextSample sampleTime="00:05:03.092" text="'put in a higher bid I might win
but I'"></TextSample>
<TextSample sampleTime="00:05:05.084" text="'pay more
it's exactly the
same thought'"></TextSample>
<TextSample sampleTime="00:05:08.027" text="'process
that you face with the
sealed'"></TextSample>
<TextSample sampleTime="00:05:10.085" text="'bid auction so in fact theoretically
the'"></TextSample>
<TextSample sampleTime="00:05:13.076" text="'same bidder should win at the same
price'"></TextSample>
<TextSample sampleTime="00:05:15.086" text="'whether I hold a
Dutch or a sealed bid'"></TextSample>
<TextSample sampleTime="00:05:18.073" text="'when we
actually run experiments it's'"></TextSample>
<TextSample sampleTime="00:05:21.032" text="'not true
people jump a little bit'"></TextSample>
<TextSample sampleTime="00:05:23.063" text="'earlier
in the Dutch auction that
is'"></TextSample>
<TextSample sampleTime="00:05:25.052" text="'they bid a
little bit higher maybe'"></TextSample>
<TextSample sampleTime="00:05:27.056" text="'because of
the excitement of it just
the'"></TextSample>
<TextSample sampleTime="00:05:29.069" text="'time while they wait is making
them'"></TextSample>
<TextSample sampleTime="00:05:31.052" text="'nervous
or something they're less'"></TextSample>
<TextSample sampleTime="00:05:32.090" text="'rational we
don't know but they bid a'"></TextSample>
<TextSample sampleTime="00:05:35.018" text="'little bit
higher in the Dutch auction'"></TextSample>
<TextSample sampleTime="00:05:36.065" text="'than they do in
the seal bid'"></TextSample>
<TextSample sampleTime="00:05:39.008" text="'the second price sealed bid
auction or'"></TextSample>
<TextSample sampleTime="00:05:42.023" text="'also known as the Vickrey auction
after'"></TextSample>
<TextSample sampleTime="00:05:44.015" text="'William Vickery
who won the Nobel Prize'"></TextSample>
<TextSample sampleTime="00:05:45.086" text="'for its
discovery along with some other'"></TextSample>
<TextSample sampleTime="00:05:47.078" text="'things about
auctions he did this work'"></TextSample>
<TextSample sampleTime="00:05:49.034" text="'in 1961'"></TextSample>
<TextSample sampleTime="00:05:50.057" text="'so the way Vickery's auction works is
it'"></TextSample>
<TextSample sampleTime="00:05:52.046" text="'works just
like the seal bid that we'"></TextSample>
<TextSample sampleTime="00:05:53.090" text="'described before
but now when we open'"></TextSample>
<TextSample sampleTime="00:05:57.017" text="'the envelopes the high bidder will
win'"></TextSample>
<TextSample sampleTime="00:05:59.003" text="'but they pay the
second highest bid not'"></TextSample>
<TextSample sampleTime="00:06:01.091" text="'the highest bid it's the minimum
they'"></TextSample>
<TextSample sampleTime="00:06:04.013" text="'could have been and still won there's'"></TextSample>
<TextSample sampleTime="00:06:06.026" text="'one way to
think about it this is
<TextSample sampleTime="00:06:07.070" text="'price of that
had they known what all'"></TextSample>
<TextSample sampleTime="00:06:09.011" text="'the other bids were this is what they'"></TextSample>
<TextSample sampleTime="00:06:10.040" text="'would have
wanted to bid is that maybe'"></TextSample>
<TextSample sampleTime="00:06:12.029" text="'plus a penny to
guarantee they're wet if'"></TextSample>
<TextSample sampleTime="00:06:14.060" text="'I am paying the
second highest price'"></TextSample>
<TextSample sampleTime="00:06:16.061" text="'I'll will I'll
be willing to bid a lot'"></TextSample>
<TextSample sampleTime="00:06:19.022" text="'more aggressively'"></TextSample>
<TextSample sampleTime="00:06:20.033" text="'if you've bid
an ebay this is how eBay'"></TextSample>
<TextSample sampleTime="00:06:23.015" text="'works you submit
a bid let's say for'"></TextSample>
<TextSample sampleTime="00:06:25.052" text="'$100 when
another bid comes in at 40'"></TextSample>
<TextSample sampleTime="00:06:28.070" text="'they then turn
around and give it to
you'"></TextSample>
<TextSample sampleTime="00:06:31.013" text="'at 40 plus the
increment which might be'"></TextSample>
<TextSample sampleTime="00:06:33.080" text="'45 if that bidder comes back with
60'"></TextSample>
color="#E5E5E5">they'll then give it again to you for 60'"></TextSample>
<TextSample sampleTime="00:06:39.005" text="'plus the increment there around 65
that'"></TextSample>
<TextSample sampleTime="00:06:41.084" text="'process
continues unless someone'"></TextSample>
<TextSample sampleTime="00:06:43.070" text="'actually bids higher than you so
what'"></TextSample>
<TextSample sampleTime="00:06:45.083" text="'that's implemented is a second price'"></TextSample>
<TextSample sampleTime="00:06:48.008" text="'auction that is
to say you don't pay'"></TextSample>
<TextSample sampleTime="00:06:50.051" text="'your bid you could have been a million'"></TextSample>
<TextSample sampleTime="00:06:52.046" text="'dollars you
still pay the next highest'"></TextSample>
<TextSample sampleTime="00:06:55.094" text="'bid plus a little bit and the
smaller'"></TextSample>
<TextSample sampleTime="00:06:59.048" text="'that little bit is the more it looks'"></TextSample>
<TextSample sampleTime="00:07:01.013" text="'exactly like the
victory which is paying'"></TextSample>
<TextSample sampleTime="00:07:02.096" text="'the second highest
<TextSample sampleTime="00:07:05.073" text="'it's easy to cheat a second-price'"></TextSample>
<TextSample sampleTime="00:07:08.016" text="'auction because
you actually see what'"></TextSample>
<TextSample sampleTime="00:07:09.045" text="'people are
willing to pay so you could'"></TextSample>
<TextSample sampleTime="00:07:10.092" text="'just go to the high bidder and say
oh'"></TextSample>
<TextSample sampleTime="00:07:12.081" text="'the second highest bid was just a
penny'"></TextSample>
<TextSample sampleTime="00:07:15.051" text="'below your bid
you're gonna have to pay'"></TextSample>
<TextSample sampleTime="00:07:17.007" text="'approximately
your bid'"></TextSample>
<TextSample sampleTime="00:07:18.045" text="'well they've
revealed it and that can be'"></TextSample>
<TextSample sampleTime="00:07:20.001" text="'dangerous
that's the downside of it
<TextSample sampleTime="00:07:22.056" text="'upside of it is
that it actually gets'"></TextSample>
<TextSample sampleTime="00:07:25.056" text="'this competitive pressure of that oral'"></TextSample>
<TextSample sampleTime="00:07:28.026" text="'auction which has you know it's a great'"></TextSample>
<TextSample sampleTime="00:07:29.070" text="'auction for
getting for extracting lots'"></TextSample>
<TextSample sampleTime="00:07:31.083" text="'of money out of people but without'"></TextSample>
<TextSample sampleTime="00:07:33.093" text="'requiring them
to be in the same room or'"></TextSample>
<TextSample sampleTime="00:07:35.082" text="'even to
be humans and a good example of'"></TextSample>
<TextSample sampleTime="00:07:37.080" text="'that the big
search auctions won by'"></TextSample>
<TextSample sampleTime="00:07:39.078" text="'Google and
Bing'"></TextSample>
<TextSample sampleTime="00:07:40.083" text="'they are second price auctions you
bid'"></TextSample>
<TextSample sampleTime="00:07:42.075" text="'but what you pay
is just what it would'"></TextSample>
<TextSample sampleTime="00:07:45.093" text="'take to hold your slot then let me let's'"></TextSample>
<TextSample sampleTime="00:07:49.005" text="'let's just think
about the first price'"></TextSample>
<TextSample sampleTime="00:07:50.058" text="'sealed bid or
the pay as bid and the'"></TextSample>
<TextSample sampleTime="00:07:52.086" text="'Vickrey auction
when I'm thinking about'"></TextSample>
<TextSample sampleTime="00:07:54.054" text="'what I should
bid - a first price
sealed'"></TextSample>
<TextSample sampleTime="00:07:56.019" text="'bid I say well
I'm gonna pay my bid so'"></TextSample>
<TextSample sampleTime="00:08:00.051" text="'let's say my value is a hundred and
I'"></TextSample>
<TextSample sampleTime="00:08:02.007" text="'think about submitting a bid of $75 that'"></TextSample>
<TextSample sampleTime="00:08:04.026" text="'means if I win I get $25 if I lower my'"></TextSample>
<TextSample sampleTime="00:08:06.087" text="'bid a bit well
there's some chance I get'"></TextSample>
<TextSample sampleTime="00:08:09.081" text="'beat but I make
more money when I do win'"></TextSample>
<TextSample sampleTime="00:08:11.082" text="'the
seal bid auction causes me to cut
my'"></TextSample>
<TextSample sampleTime="00:08:14.076" text="'bid a lot
because that's where my profit'"></TextSample>
<TextSample sampleTime="00:08:17.046" text="'is on the Vickrey auction in
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<TextSample sampleTime="00:08:20.007" text="'then I'm gonna
bid $100 because I want'"></TextSample>
<TextSample sampleTime="00:08:23.043" text="'to
win anytime the price comes out
below'"></TextSample>
<TextSample sampleTime="00:08:26.004" text="'$100 so that
comes in level that's just'"></TextSample>
<TextSample sampleTime="00:08:28.002" text="'gravy it's all
extra money for me it's'"></TextSample>
<TextSample sampleTime="00:08:30.003" text="'all money in my pocket so there's no'"></TextSample>
<TextSample sampleTime="00:08:31.070" text="'price advantage
of lowering your bid'"></TextSample>
<TextSample sampleTime="00:08:34.037" text="'there's only a
did I win'"></TextSample>
<TextSample sampleTime="00:08:36.096" text="'well I
only want to win whenever the'"></TextSample>
<TextSample sampleTime="00:08:39.030" text="'price is below
my value now that's'"></TextSample>
<TextSample sampleTime="00:08:41.037" text="'assuming I know
my value somebody came'"></TextSample>
<TextSample sampleTime="00:08:43.074" text="'along when I was
a graduate student and'"></TextSample>
<TextSample sampleTime="00:08:45.051" text="'offered
to sell me a
fairly new car for'"></TextSample>
<TextSample sampleTime="00:08:48.024" text="'$50 you know something's wrong with this'"></TextSample>
<TextSample sampleTime="00:08:50.091" text="'like it's stolen
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