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One Man’s Plastic is Another Man’s Treasure: The Parody of Value in AuctionsI

The Bank of England recently started printing new untearable polymer plastic 5 pound notes (because there’s nothing worse than tearing your bills in your rush to pay the barista for your morning coffee), as part of its recent initiative to replace traditional paper notes. The frenzy surrounding the new currency has led to strange valuations of the currency of Ebay. Some of these 5 pound notes are being sold for upwards of 150 pounds! This is a real life example of the power a buyer’s valuation of a item has in terms of who wins the item and at what cost.

In this example, there is one seller who puts their one item on the market for a price determined by the buyers’ bids. The value to the seller is only known to them, but in this case the value is hard to really quantify owing to the fact that the bills just came out; so any value attached to them in excess of 5 pounds is entirely subjective. But, once the item is on the bidding market, its value is determined by the actions of the bidders. Bidders can continue to bid higher amounts on the item until the time runs out (a common strategy is to hold off on bidding until the very end in an attempt to steal the auction with minimal participation). Because the end of bidding is often determined by time limit and not a set price target, the final selling price of whatever item is on the market tends continue rising until the very end, often past its true value due to the bidding of buyers. Buyers on Ebay do not act rational in the sense that often buyers will pay over their true value of an item because of the thrill of bidding and winning an item one truly covets. The general strategy of most conscientious bidders is to bid true value, once the bidding exceeds what I believe the item to be worth to me, I stop bidding at take a payoff of 0. Many will bid way above their true value in order to win the item; on a personal level they won because they just got that new pair of skis or that new plastic dollar everybody is hollering about. But in an economic sense they are losers because they have a net negative payoff due to paying over their true value. However if you won one of the auctions for the new 5 pound note for an astronomical price, you can sleep peacefully knowing that you own a piece of currency history (one of the first set of plastic notes in circulation)…until 50 years from now when a covert team of museum tour guides¬†breaks into your safe in an effort to stock their new exhibition on global currencies.



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October 2016