Ever wondered what causes the spate of wild bidding in the last few minutes of an Ebay auction? Scientists say they now have answer: The irrational behavior is caused by people’s fear of losing, not their desire to win. While economists have recognized the concept of “loss aversion” for some time, a new set of experiments used brain scans and lab experiments to show how strongly the phenomenon plays out in auctions, and how it’s tied to overbidding.
In the first experiment, test subjects participated in either a lottery or an auction. During the games, scientists watched the responses of the subjects’ striata—the brain’s reward center—using functional magnetic resonance imaging (fMRI). The elation of winning was the same in both games, but the agony of defeat was crushing for losers of the auction. After auction, brain activity in the loser’s reward centers decreased substantially. But it hardly blipped when the person lost a lottery [Ars Technica]. What’s more, auction losers who had the steepest declines in striata activity were more likely to have overbid during the auction.
