Art of Auctioning Art
In a somewhat recent Sotheby’s auction, sales lagged. The “Masterworks” art collection of the late A. Alfred Taubman, former chief of Sotheby’s from 1983 to 2000, was estimated to be worth $500 million. The low estimate for the collection was deemed $375 million. Disappointingly, sales reached just above the low estimate, at $377 million. This result has far reaching implications on the health of the art market; the auction’s centrality to the market for art owes largely to the value of the pieces at this auction. Due to competition with the rival auctioneer Christie’s, Sotheby’s was pressured to meet expected sales; these shortcoming put Sotheby’s at financial risk. However, Tad Smith, recently appointed Sotheby’s president and CEO this March, believes that sales are actually on track with many pieces still left to be sold.
One note of interest, however, is that selling prices for individual art pieces were often either exceptionally low or exceptionally high. This could possibly imply the effects of an information cascade. Perhaps, upon hearing multiple initial voices of interest, other bidders believed that there was something more valuable to the artwork known only to the initial bidders. Perhaps because of the wealth that the auction attracts, the high prices don’t dissuade bidders from participating in the information-cascade-fueled bidding bout. Similarly, if few people bid initially, an information cascade could arise that dissuades anyone from bidding. Perhaps one individual might convince himself that his perceived subtle beauty of a piece is actually misguided, if no one else sees it. Thus, it might be understandable that the art pieces sold for extreme prices.