Why Auctioneers
We have been discussing auctions under the assumption that everyone bids rationally, meaning that if there is a dominant strategy then the bidders will follow it. I was thinking about when this might or might not actually be the case, and how it might affect the auction.
A Slate article, “Why Do Auctioneers Talk Like That?” talks about how an auctioneer’s speech is designed to mess with the rational bidding that we’ve been assuming in class. Its speed is designed to give a sense of urgency while its cadence and monotone are designed to trigger listeners’ natural call and response conditioning. These speech patterns are designed to make the bidders bid with less thought, so that they can be tempted to bid above their predetermined value. Auctioneers also promote competition between bidders. This adds some temporary value to the item (the triumph of winning a competition), which encourages people to bid higher than their original value.
Some interesting things about this “irrational” bidding is that it actually maintains the same overall social welfare, because whatever the bidder pays above their desired price simply goes to the seller, so even if they have a negative payoff, payoff is conserved by the sellers greater gains. Also, the auctioneer actually has the ability to create value. When he creates competition between bidders, it could be said that he s making bidders bid above their true values, but it could also be said that he’s adding real value to their true values. If someone places value on winning, as many people do, then the auctioneer is creating value, and thus raising the total payoff of the system (the seller gets more from the buyer, and yet the buyer maintains a non-negative payoff).