Comments on: Why do people overbid in auctions? http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/ Mon, 26 Nov 2012 12:00:51 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: Jon http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1257 Jon Thu, 14 Apr 2011 01:21:35 +0000 http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1257 Yeah very interesting... I fell into the loss framed group at a house auction recently because I had been to a few auctions over the previous weeks and lost. So from the very start I was determined "not to lose!". The trouble was that the one and only other bidder was in exactly the same frame of mind (had seen him lose out at other auctions too)... so we ended up in a bidding war that went over what either of us expected (I heard his wife say a little too loud towards the end "we can't afford this!" oops). I won in the end paying more than I had planned to at $570k (my planned limit $550k set solely on a loan approval not what we thought it was worth.) Based on research before hand it was still a fair price for the current market having seen similar properties sell around $600k. I would love to have seen my brain activity after that, joy at winning but stunned at the level it reached and nervous about whether the bank would approve the additional amount. We could have scraped the additional ourselves but to mortgage it was far more comfortable and fortunately they did approve it, but I took a risk in assuming they would. The very next morning a front page news article said the average house price at auction had jumped up to $580k and the market might be turning for the better. For the first time I was happy to be 'Below Average'! :) Yeah very interesting… I fell into the loss framed group at a house auction recently because I had been to a few auctions over the previous weeks and lost. So from the very start I was determined “not to lose!”. The trouble was that the one and only other bidder was in exactly the same frame of mind (had seen him lose out at other auctions too)… so we ended up in a bidding war that went over what either of us expected (I heard his wife say a little too loud towards the end “we can’t afford this!” oops).

I won in the end paying more than I had planned to at $570k (my planned limit $550k set solely on a loan approval not what we thought it was worth.) Based on research before hand it was still a fair price for the current market having seen similar properties sell around $600k. I would love to have seen my brain activity after that, joy at winning but stunned at the level it reached and nervous about whether the bank would approve the additional amount. We could have scraped the additional ourselves but to mortgage it was far more comfortable and fortunately they did approve it, but I took a risk in assuming they would.

The very next morning a front page news article said the average house price at auction had jumped up to $580k and the market might be turning for the better. For the first time I was happy to be ‘Below Average’! :)

]]> By: Amadan http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1256 Amadan Wed, 01 Oct 2008 14:56:03 +0000 http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1256 Was there not an economist during the Cold War years who used to auction dollar bills to his class? The idea was that the highest bidder got the bill, but the highest underbidder had to pay the amount of their bid to the highest bidder. The idea was to model the nuclear arms race. Bids would move in a predictable manner up to 99 cents. Then, realising the marginal advantage of not coming second, it could quickly spiral out of control, with bids rising over $10. After all, so long as there's a close underbidder, you might come out at a net profit. And if you lose, you truly lose. Was there not an economist during the Cold War years who used to auction dollar bills to his class? The idea was that the highest bidder got the bill, but the highest underbidder had to pay the amount of their bid to the highest bidder. The idea was to model the nuclear arms race.
Bids would move in a predictable manner up to 99 cents. Then, realising the marginal advantage of not coming second, it could quickly spiral out of control, with bids rising over $10. After all, so long as there’s a close underbidder, you might come out at a net profit. And if you lose, you truly lose.

]]> By: Mary Ann Epperson-Nilson http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1255 Mary Ann Epperson-Nilson Tue, 30 Sep 2008 15:18:12 +0000 http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1255 Like Calli, I tend to overbid at charity auctions knowing the item was donated and where the proceeds will be directed. During the charity auction I am a bold daring loud laughing bidder which entices others to bid, thus driving the bids much higher than the item value but creating a valuable contribution at the event. Winning is inconsequential, the applause and fun is the stimulus. This behavior creates a night of competitions, stimulating even the quiet ones into the fun of bidding. Ebay auctions are a completely different story. While it is true, if I want the item I will set an initial high maximum bid, I rarely overbid because like Jim, I have already researched the value. There will be another similar item another time. BUT, if I stumble onto an Ebay item of interest, my bidding is not controllable. I am extremely competitive. I love the competition and the win. The fear of losing is not a variable. I do not look at myself as a looser but as THE winning competitor. I will win, then the interest is completed. Great study. Like Calli, I tend to overbid at charity auctions knowing the item was donated and where the proceeds will be directed. During the charity auction I am a bold daring loud laughing bidder which entices others to bid, thus driving the bids much higher than the item value but creating a valuable contribution at the event. Winning is inconsequential, the applause and fun is the stimulus. This behavior creates a night of competitions, stimulating even the quiet ones into the fun of bidding.
Ebay auctions are a completely different story. While it is true, if I want the item I will set an initial high maximum bid, I rarely overbid because like Jim, I have already researched the value. There will be another similar item another time.
BUT, if I stumble onto an Ebay item of interest, my bidding is not controllable. I am extremely competitive. I love the competition and the win. The fear of losing is not a variable. I do not look at myself as a looser but as THE winning competitor. I will win, then the interest is completed. Great study.

]]> By: Calli Arcale http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1254 Calli Arcale Fri, 26 Sep 2008 21:30:12 +0000 http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1254 It might be interesting to see if there is a difference between live auctions and anonymous silent auctions. I would bet there would be, though in my experience, people often overbid on both. Mind you, there can be added considerations in some auctions. I like to go to charity auctions. There's an added incentive to overbidding there, because you know the money is going to a good cause. It's a bit like getting a tote bag for pledging money to your local PBS station, only a lot more fun. ;-) It might be interesting to see if there is a difference between live auctions and anonymous silent auctions. I would bet there would be, though in my experience, people often overbid on both.
Mind you, there can be added considerations in some auctions. I like to go to charity auctions. There’s an added incentive to overbidding there, because you know the money is going to a good cause. It’s a bit like getting a tote bag for pledging money to your local PBS station, only a lot more fun. ;-)

]]> By: Chris P http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1253 Chris P Fri, 26 Sep 2008 16:54:40 +0000 http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1253 People bid too much because they don't do their research properly. Bidding $60 for a worn out Chinese machine tool that sells on special new for $20 is just sheer stupidity. That's all. Chris P People bid too much because they don’t do their research properly. Bidding $60 for a worn out Chinese machine tool that sells on special new for $20 is just sheer stupidity.
That’s all.
Chris P

]]> By: Jim Thomerson http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1252 Jim Thomerson Fri, 26 Sep 2008 00:43:37 +0000 http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1252 When I bid on ebaY, I bid what the item is worth to me and then go do something else. If I am out bid, the item was worth more to someone else than to me and they should have it. I will occasionally put in a low bid just to make some action on items that are interesting but not particularly wanted. Occasionally I am surprised to win one of these. When I bid on ebaY, I bid what the item is worth to me and then go do something else. If I am out bid, the item was worth more to someone else than to me and they should have it. I will occasionally put in a low bid just to make some action on items that are interesting but not particularly wanted. Occasionally I am surprised to win one of these.

]]> By: Kevin H http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1251 Kevin H Thu, 25 Sep 2008 22:09:29 +0000 http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1251 I don't really see the difference between being risk adverse and being fearful of loosing. We all know that risk aversion must have at least one neural correlate, and fear would seem to be a logical choice. I guess how I would put the study is that if found out that both previous lines of thought had half the answer. We are risk adverse, however, we are primarily risk adverse in social situations. I don’t really see the difference between being risk adverse and being fearful of loosing. We all know that risk aversion must have at least one neural correlate, and fear would seem to be a logical choice.
I guess how I would put the study is that if found out that both previous lines of thought had half the answer. We are risk adverse, however, we are primarily risk adverse in social situations.

]]> By: Maria http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1250 Maria Thu, 25 Sep 2008 21:13:59 +0000 http://blogs.discovermagazine.com/notrocketscience/2008/09/25/why-do-people-overbid-in-auctions/#comment-1250 Great post. I think there's a difference, though, between bidding "more than economic theory would predict", and bidding "more than what they actually think an object is worth". You could do the first without doing the second, as the optimal bid in a first price auction is less than your actual valuation. Great post. I think there’s a difference, though, between bidding “more than economic theory would predict”, and bidding “more than what they actually think an object is worth”. You could do the first without doing the second, as the optimal bid in a first price auction is less than your actual valuation.

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