Auctions, at least in the conventional sense, are weird and tricky in terms of human psychology - they feel like an opportunity to get a valuable thing for less than its real value, but they create an environment in which people are encouraged to pay more than they really wanted to.
As a result, anyone applying a more level-headed approach will tend to provoke an emotional response from others; ie:
“You bid at the last minute and beat me! That’s not fair! If I had known I would have bid more!”
and
“You bid late and caused me to counter-bid more; I still won, but I paid more than I would if you had never bid! That’s not fair!”
I’ve heard that a major driver in the evolution of human intelligence has been an arms race between people detecting others cheating them, and people trying to cheat without being detected. In an environment like that, it’s not surprising that some peoples’ cheat-detectors end up a little oversensitive, and likely to assume that someone’s cheating them somehow, even when they’re not.
Agreed. With a side order of: One heck of a lot of people conflate “It’s not advantageous to me” with “It’s not fair”.
It’s toddler thinking, but it persists throughout adulthood in many (most?) people. IMO a mark of maturity is how well we each suppress that impulse. IME there’s an awful lot of immature adults wandering around out there.
This would be my ideal approach for Ebay. However, I’ve bungled the late-as-possible entry enough to not leave the time aspect of the auction to chance. The sting of a lost opportunity lingers.
Another reason are equal bids. This doesn’t happen with Ebay but elsewhere like Liveauctioneers. LA is one platform used by the auction places but not the only one so they get bids from other sources for the same item I’m bidding on. Some of us buyers do our online bidding and stuff on LA and see only those prices but, when the day comes, the auctioneers open envelopes, take live in-person bids (some of them), phone calls, seller reserves, etc. Twice now in recent months, an item has sold for my bid amount but to an earlier bidder from another platform.
Here’s one item from this week, hammer price was $150, same as my bid, but I lost to the earlier submission. And it’s fair, how else could it work?
It is not the same as a sealed bid. The difference is in how the bidders perceive it. Bidders in a sealed bid sale know that their bids are a “one and done” thing. That is, they have to do some homework and figure out what an item is worth to them as well as considering how a competing bidder might value it. It’s fairly emotionless and more analytical. In a rising bid scenario, OTOH, whether on eBay, in person, or any other setting, bidders tend to get emotional and/or competitive. Frequently, the lizard brain takes over.
The bidding process may be different, but people are the same. If some people are not willing to take what they perceive to be a risk even where it’s not a real risk, they aren’t likely to take that risk where it’s a real risk.
I agree totally with your contention about emotion and competitiveness - what I don’t understand is why you would think that when being less emotional and competitive (which you say they are in a sealed bid auction) they may bid higher. I think it’s pretty obvious the opposite is often going to be true.
It’s all very well to talk about homework but the reality is that for many things working out market value is difficult. That is going to put people off. The fundamental point is that in a sealed bid auction, buyers are deprived of market information. Your assumption is that this will cause people to put in their highest possible bid but I think it may do the opposite, for reasons given.
That’s the reasoning behind second price auctions, where the highest bid still wins, but the actual price the winner paid is the second-highest bid. In principle this removes any incentive to not start out with your highest bid, especially if that bid given only to the auctioneer, rather than made public.
I think that because I studied and designed competitive sales for close to 20 years. Sealed bid sales have their place. Open call auctions have their place. There’s some overlap, but there are clearly instances where one will yield a higher price than the other.
The only market information not available to potential bidders in a sealed bid sale is the number of other potential bidders, but that’s true of many other sales methods. Every knowledgeable bidder - and I’ll grant you that there are frequently bidders that are pretty damn ignorant - develops some kind of analysis of the market for the item being sold.
When I see something I MUST have, I’ll bid early, and set my max at often twice what it is objectively worth. I usually get it for about 120% of the objective value.
That has happened to me too. I looked back at the bidding, and it was a multi-bidder sniping session at the end, not just 2 bidders, so it would take a real master to operate all those socks if that’s what they were. It was also the kind of thing where I could see someone getting carried away and over-bidding what they actually could afford.
I was offered the item at my last bid, not the highest bid, and I took it.
Total toddler thinking. I work with toddlers, & slightly older kids (up to 5). They do not understand why randomness is fair, nor why everybody doesn’t always get a turn.
Sometimes someone will commit some minor infraction, and you will tell them not to do that, but another kid will copy it, and you will say “Why are you doing something that someone else just got told not to do?”
Perfect grown-up sense, right?
Toddler nonsense. The way they think, EVERYBODY GETS A TURN. Each kid is going to commit this misbehavior, one at a time. You try to stop them, but you can’t. However, they will stop once everyone has had a turn, so unless it is actually dangerous or harmful, just let it play out.
Given that “everybody gets a turn” is an earlier developmental stage, it wouldn’t surprise me if some people are stuck there. Walking without first crawling, or talking without first babbling is very rare.
Or, in more serious detail, I suspect that there is a bimodal distribution of bidder personalities. Such that some subpopulation of bidders will be more cautious / low-bidding in a sealed-bid auction that open callout, while some other subpopulation of bidders will be more ambitious / high-bidding.
The relative sizes of the two populations don’t much matter to the outcome as long as the latter population isn’t zero.
I’m not questioning your expertise, but hoping to mine it a bit.
IMO there is a big difference between skilled professional bidder behavior, dedicated amateurs, and the great unwashed masses of retail therapy / entertainment bidders.
An example of the former (“Type I”) might be the people employed by car dealerships who attend the weekly auctions of used cars. They buy commodity cars all day long and have a very good sense of the value of each item as it’s up for bid. IMO these folks are both competent and accurately confident in their competence.
The middle case (“Type II”) might be somebody who is an expert collector of [whatevers] or who is running some manner of IRL shop and obtains their goods from a larger catchment area by sourcing them from e.g. eBay. These folks develop their own idiosyncratic style in isolation and for many sorts of [whatevers] there isn’t some objective price standard such as the infamous Kelley Blue Book for commodity used cars. IMO these folks are sorta competent but probably overconfident in their competence.
The latter crowd (“Type III”) needs no example: it’s all of the rest of us. Many of whom IMO are walking Dunning-Kruegers: supremely confident but actually clueless. And others who are all about the emotion, economics be damned.
Also, there’s a difference between buyers at auctions and would-be sellers at RFPs. Often government takes in sealed bids to perform some project, with the winner being the lowest qualified bidder. The direction of success is opposite to a conventional auction, but everything else about the logical and psychological process is the same. And the people making those bids are pros & know their competitors are pros too.
Given that background, can you enlighten us on which sorts of bidders were the norm for the projects you worked on? What can you say about my taxonomy or the different features of bidders from each category?
ISTM there’s a big difference between designing an auction to best fleece the emotional subset of my Type III bidders versus one to get the best prices on e.g. used cars from my Type I bidders.
I’m glad to see this more nuanced take on bid strategy. I can remember many threads, not necessarily on the dope, where the consensus was always that sealed maximum bids take all the strategy out and things like bid sniping only work because of people behaving irrationally.
In reality, if there is a “break even” price for an item, the buyer often doesn’t consciously know what it is, and will be bidding way below that price. Why? Because in a consumer market it more often makes sense to wait for another item to become available, or buy something similar, rather than settle for the maximum reluctance deal.
Given this context, yes there is significant scope for when to bid and how high. eBay’s auto-bidding simplifies things a bit but does not eliminate strategy.
Which raises the additional factor that there are three very different supply conditions. You’re bidding on an item that …
is almost certainly going to be one-of-a-kind.
there almost certainly will be more out there, but only on an unpredictable schedule and you may never notice those future auctions until they’ve passed.
is a commodity available in continuous supply able to meet the total demand.
The emotional landscape of those three scenarios is very different. As is the hard-headed commercial calculus if you lean that way.
Aside / Confession
I have developed a fondness for cheap crap from Temu. For those unacquainted, they are never an auction as such, just plain fixed price retail of cheap Chinese crap. If Amazon is a ginormous version of, say, Target plus Home Depot, then Temu is a ginormous version of the Dollar Store plus K-Mart toward the end of its sorry life.
But their algorithms are very good at showing you partial and ever-changing search results for any given product description. Which produces a very strong emotional reaction to “Buy it now when you spot it, since you’ll probably never find it again. Not even if you search the very same way 3 minutes from now.” Their UI also tries very hard to prevent you from having multiple tabs open at once, so once something is off-screen, it’s gone. And interestingly, in other sections of the UI, they favor the “multiple tabs to track multiple products” design.
It’s an interesting study in self-psychology to watch how that website behavior drives my own. They’re triggering my scarcity instinct at will. We can be sure that’s totally by design and proves very effective for their bottom line.
On the Temu aside, I wish I had the option to invest in Temu early. Because, I lived in China, and I saw just how much better Taobao and similar chinese platforms were than Amazon or eBay at suggesting items. As you say, always a bit different to give a feeling of time scarcity, but also a good mix of stuff: some similar to what I’ve bought before, some just what’s trending as popular. With all this being on top of the low prices, it seemed clear to me that something taobao-like would enter the Western market and take a big share.
My approach with my clients was that they really needed to do some homework and figure out all the ins, outs, and nuances of their item and the market. They needed to understand if their bidders were going to be local, regional, national, or international. Is the item’s value pretty easy to lock down, or was there potential for a higher value that could be ‘unlocked’ with specific knowledge? An example I used to use when illustrating this last point - which clearly shows I’m freakin’ OLD - is the children’s story of Mike Mulligan and his steam shovel, Mary Anne. Mike was able to dig a foundation for a high-rise building, but in doing so, made it nearly impossible to get Mary Anne out of the hole. Given that predicament, what was Mary Anne worth? As a steam shovel, not much. The cost of getting Mary Anne out of the hole didn’t make it worth the effort. In the story, however, Mary Anne started a new life as the boiler for the building that would eventually be built around her, indicating a substantial value remaining in her.
My clients also had to know who their bidders were likely to be. End users? Flippers? Speculators? Were there likely to be a lot of them, or just a handful? Or even possibly just one? Is your item sexy, or is it boring? IOW, is it an all original AC Cobra with low miles and matching numbers, or a home-built Cobra replica with a rusted out floor pan and cobbled together under a shade tree powered by a tired Chevette motor?
It wasn’t unusual for clients to want to put their stuff up for a oral (public outcry) auction to see what they’re going to get, basically throwing stuff up against the wall to see what sticks. That’s certainly an easy way to do it, but if they haven’t put some thought into it, they could end up leaving cash on the table. For example, one client was about to let something go for $11-12M (It’s been a long time, and the exact numbers escape me, but exact numbers aren’t important). I knew it could sell for more than that, but I also knew that it was beyond my scope to bring a higher price, so we hired consultants. In the end, the client invested something like $25K in the consultant, but the resultant sale was close to $55M. The client didn’t know how to reach the buyers in the $55M Club, and neither did I, but our consultant did. They polished up the turd and had access to the rarified air of the insanely wealthy, and justified the risk.
This is a long way from eBay strategy, though, and may be more of a tangent than I intended.
I had a different situation. I collect a particular type of bronze items (mostly vases) by a company that had a short life span in the early 20th c. There’s a guy in Brooklyn who literally wrote the book on this company and its wares, and from whom I’ve purchased a few pieces (I’ve also met him and his wife at a couple of shows, and he’s a nice guy).
Anyway, there was a vase on eBay that was a bit unusual, and I bid on it. I was competing with Brooklyn guy. Turns out neither of us met the seller’s reserve, so I immediately contacted her and asked if she was willing to sell it to me. She was amenable, expecially since she was in Pasadena, and I worked in the San Gabriel Valley so I could pick it up and save her the shipping hassle. When I got there she said Brooklyn guy also contacted her, but since I got to her first, she sold to me.
I also enjoyed picking it up because she had a couple of dachshunds. She said they were a bit grumpy and kept them in the kitchen, but I told her not to bother. She let them out, and they were fine with me. I got the vase and got to pet some wiener dogs!
That’s fundamental. What you described is the 4-year-old’s definition of “unfair”. We never outgrow it. Every one of us has a egocentric toddler lurking in the background of our psyches waiting to throw a tantrum.
