Auction for a painting that destroyed itself
Source: https://www.theguardian.com/artanddesign/2018/oct/06/banksy-sothebys-auction-prank-leaves-art-world-in-shreds-girl-with-balloon
In this article, a piece of artwork was sold at a Sotheby’s auction for 1.04 million pounds but what is peculiar is the fact that the artwork shredded itself immediately after it was sold. So, in a first price auction and assuming Sotheby’s auction is like one discussed in class (no buyers premium and buyer pays whatever he/she bids for the item), we have to wonder whether the buyers payoff was greater than zero.
Let’s assume the bidder bid below his true value (which he should be doing in a first price auction otherwise the payoff is zero). After the painting is “destroyed,” it’s value arguably should go down and the bidders payoff is now positive only if the new lower value is still lower than his bid.
However what is interesting is some people argue that the value of the painting actually went up. This is attributed to the fact it is a work of art by Banksy (anonymous well known street artist) and he supposedly set the painting to shred itself if it was ever put up for auction and bought. Now if the value of the painting went up, other bidders should have no remorse if they bid up to their true value. Because we can assume all knowledge was equal (no one knew the painting would shred itself, allegedly), then the winner would have still won. It only matters if someone who lost would have won had they bid more than the winners bid, granted their true value was greater than that bid.
So we can see, bidding below ones true value is the strategy to go with but it can be tricky to determine how much lower to bid. In addition, sticking with ones strategy without outside information makes the most sense. If anyone knew the painting would increase in value after it was sold, they could have used that information to their advantage and bid higher than their true value if its lower than the value of the painting.
Another interesting note is, it was questioned as to whether the bidder had to actually pay for the painting after everyone in the room witnessed it shredding itself. Was it still worth the 1.04 million pounds they bid? Later it was confirmed that the buyer still proceeded with their purchase, stating, “I began to realize that I would end up with my own piece of art history” after they overcame the initial shock.