Irrational decisions at auctions
Reggie Ezeh (rce57)
Link to article: http://www.bbc.com/future/story/20120907-why-we-overpay-at-auctions
The article “Why Do We Pay More Than We Should at Auctions?” by Tom Stafford, highlights the main issues that we find in auctions in todays world. He makes the assertion that people in auctions tend to spend more than they should at auctions. He mentions that auction events are usually overwhelming due to psychological effects of being pressured and this in turn causes people to make irrational decisions. He says “Auctions push a number of our psychological buttons, and in fact the phenomenon of ‘auction fever’ is well documented”. He also made claims that people tend to pay a lot more during auctions due to the competitive aspect of it. He explains that “Auctions put you in intimate contact with other people who are all providing social proof that the sale item is important and valuable.” This means that people will often decide to pay more than their actual value during bidding because they feel that since others might be willing to pay more, then it is worth more.
The topic that Tom Stafford addresses in his article can be connected to the topic that we learned in class called Auctions, and it can be found in Chapter 9 of the Class textbook. In class we learned about different types of auctions such as Ascending bid, Descending bid, Frist price, and Second price. We also learned that it is best to come up with a strategy for auctions even before attending them. For example, we learned that dominant strategy in an Ascending bid is to stay until your value is reached. This is beneficial because you will never have to pay more for an item than your value is for it, no matter how much others are paying. Interestingly Stafford states “By allowing you to set a private maximum bid in advance, eBay auctions are better for individual buyers than public auctions where everyone has to shout out their bid in public”. This statement highlights the same dominant strategy in the ascending bid as it helps to assure that you will never pay more than your value for an item.