How Far Will We Go To Win
Summary
An auction is a fine example of game theory at work, with a long history of people bidding over the odds in order to win. So, how do you win at an auction and why do people behave so strangely at them?
How Far Will We Go To Win?
When it comes to winning and losing it’s surprising the lengths we will go to in order to win. Of course, no one wants to be the loser, but does that mean we will win at all costs? A prime example of the lengths we will go to when we are in competition with others is the auction. When we study an auction room we see some fascinating behaviour. Bidders are pitted against each other and while their first motivation in offering a higher bid than their opponentis to gain the item they want, the further along the auction goes the less it’s clear if that motivation remains the same.
The game
Let’s look at the game we are plying here. Say we are auctioning off an item that’s worth£100. We start the bidding at £1 and two very competitive bidders set off with their bids. How quickly do you think the bidders will go over the £100 the item is worth, just so they win the auction? The answer is, pretty quickly! They both went there to win and neither of them wants to lose, even if it means they end up paying over the odds. At this point they aren’t thinking about the item so much as feeling the need to win, so they keep going and going until one of them realises what’s happening and backs down. The one who wins, hasn’t really won at all, but they feel like they have.
The seller always wins
In this game there is only ever one winner and that’s the person with something to sell. Imagine our seller has a £10 note and he auctions it off to the highest bidder. Sounds crazy, right? Who would pay more than the minimum amount to get £10? How about the rules of the game state that the lowest bidder has to pay what they bid, even though they lost? Sound seven crazier, yes? Well, when this game is played people behave very oddly and usually bidway over £10 to win the £10 note. Think about it, if someone bids £1 you are still getting a great deal if you bid £2, and on it goes. And meanwhile the seller is pocketing the loser’s bid and the eventual winner’s bid, making him a tidy profit.
Winning is everything
You already know that winning is the name of the game, but the trick is to win while letting others think they have also won something. So, when our bidder pays way over the odds just to win the auction, allow them their victory. After all, you, as the seller, are the one who has won the most. Remember, an item, no matter what it is, is only worth what someone is prepared to pay for it, and as the winning player in this game, it’s up to you to make sure everyone thinks your item is worth much more than it is, then let the bidding commence.