The psychology of auctions: Some recent findings

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The psychology of auctions Some recent findings

• Gillian Ku
• Organisational Behaviour

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Auction Fever and Animal Auctions

• Chicago cows
• 65 live and 75 Internet auctions in 1999
• Generated 3,477,252 almost 7 times initial
  estimates

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Auction Fever and Animal Auctions

• Cow, fish, moose, Snoopy, etc. auctions
  throughout North America

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Auctions are Everywhere

• Private auctions
• eBay, Sothebys, Christies, real estate
• Commercial
• Flowers, fish, B2B, airports, MA
• Governmental
• Radio spectrums, land
• Stock markets

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Roadmap
Anchors Auction Fever Reducing Escalation
Starting low ? ending high Animal auctions Overview Starting low hype ? ending highest Integral and incidental arousal Post-escalation regret Predicted entrapment Self-affirmation Exit champions
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Roadmap
Anchors Auction Fever Reducing Escalation
Starting low ? ending high Animal auctions Overview Starting low hype ? ending highest Integral and incidental arousal Post-escalation regret Predicted entrapment Self-affirmation Exit champions
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Effects of Anchors

• Typically find an assimilation effect (positive
  correlation)
• Judgments (e.g., number of African nations in UN,
  property price estimates)
• (Tverksy Kahneman, 1974 Northcraft Neale,
  1987)
• Behaviors (e.g., first offers in negotiations)
• (Galinsky Mussweiler, 2001)

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Starting Low ? Ending High

• Lower barriers to entry
• (Ariely Simonson, 2003 Kamins, Drèze,
  Folkes, 2004)
• Increased escalation of commitment
• (Rubin Brockner, 1975 Teger, 1980 Staw, 1976)
  
• Inferred value of traffic
• (Cialdini, 1993 Dholakia Soltysinski, 2001)

? Lower starting prices ? more traffic ?
higher final price
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eBay Archival Study Design

• Completed eBay auctions
• 179 Tabriz Persian rug
• 87 Nikon digital cameras
• Variables
• Starting price
• Traffic (bids, unique bidders)
• Final price

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Mediation Analysis

• Specific type of regression analysis to
  demonstrate
• A ? B ? C

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eBay Archival Study Results
Starting Price
Final Price
-.45
.59
Traffic
p lt .001
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Starting Low Ending High?
? When traffic is ?, starting low ? ending
high When traffic is ?, starting low ? ending low
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Michael Jordan Study Design

• 76 Michael Jordan shirts
• Correct (Michael) or incorrect (Micheal) spelling
• Starting price
• Traffic (bids, unique bidders)
• Final price
• 36 completed
• 37 correctly spelled unsold vs. 73
  incorrectly spelled unsold

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Michael Jordan Study Results
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Anchors

• Anchors affect final judgments and behaviors
• Property values, judicial sentences, dyadic
  negotiated outcomes
• Anchors in auctions
• Anchors as a social phenomenon number of
  individuals is endogenously determined
• Barriers to entry result in typical assimilative
  effect

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Roadmap
Anchors Auction Fever Reducing Escalation
Starting low ? ending high Animal auctions Overview Starting low hype ? ending highest Integral and incidental arousal Post-escalation regret Predicted entrapment Self-affirmation Exit champions
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Effects of Arousal

• Impairs decision-making
• (Mano, 1992, 1994)
• Restricts attention
• Increases use of simple decision rules
• Increases reliance on previously-considered
  information

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Effects of Arousal on Auctions Competitive
Arousal Model
Rivalry
Audience
Time Pressure
Bäckman Molander, 1986
Zajonc, 1965
Maule, Hockey, Bdzola, 2000
Arousal
Mano, 1992 1994
Overbidding
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Dollar Auction Study Design

• Typical 20 auction rules
• Bidding starts at 1 and proceeds in 1
  increments
• Highest bidder pays what they bid and receives
  20
• Second highest bidder pays what they bid

• Auction task
• Modified dollar auction for prize of 356 points
• Computer confederate opponent
• 800-point endowment
• All points converted to cash
• Limited time to make each bid decision
• Participant makes first bid of 40 points
  40-point bid increments
• Computer confederate always bids above
  participants

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Dollar Auction Study Design

• 71 undergraduates
• Stakes manipulation
• 4 points 0.01 (prize 0.89) or
• 4 points 0.10 (prize 8.90)
• Time pressure manipulation
• 10 seconds or
• 4 seconds
• Dependent measures
• Maximum bids
• Index of arousal (aroused, astonished, surprised)

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Dollar Auction Study Results Maximum Bid
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Dollar Auction Study Results Reported Arousal
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Dollar Auction Study Results Mediation
High Stakes- High Time Pressure
.30
.41
Maximum Bid
Arousal
p lt .05 p lt .001
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Effects of Arousal

• Via attributions
• (Dutton Aron, 1974 Schachter Singer, 1962)
• Arousal from shaky bridge interpreted as romantic
  interest

? Arousal ? Interest ? Bidding
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Recalling Arousal Study Design

• 53 undergraduates
• High vs. no arousal
• Please recall a particular competitive incident
  in which you felt very aroused, stirred up, and
  excited. Try to re-experience the event and
  feelings as vividly as possible. Please describe
  your feelings of arousal and excitement and what
  happened in this competitive situation.
• Please recall a particular competitive incident
  in which you felt very quiet, peaceful, and calm

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Recalling Arousal Study Design

• Bidding scenario
• Buying shirt on eBay brand new with tags still
  on. It is a blue short-sleeve 100 cotton shirt
  with a nice weave pattern woven into the
  material.
• Early in auction, no bids placed yet
• Dependent measures
• Number of bids
• Interest in shirt

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Recalling Arousal Study Results Bids and Interest
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Recalling Arousal Study Results Mediation
.31
.36
Arousal Condition
Interest
Bids
p lt .05
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Auction Fever

• Structural features of auction (stakes and time
  pressure) can affect arousal, bidding, and
  overbidding
• Manipulated arousal (recall prime) can increase
  interest and bidding
• Other ways to increase arousal and interest?
• Auction formats
• Hyped descriptions
• Espresso?

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Overall Conclusions

• Structural differences
• ? psychological processes
• ? bidding overbidding
• Anchoring ? barriers to entry, escalation of
  commitment, value inference
• Competitive arousal ? arousal, interest
• (Learning to not overbid is possibleeven if its
  difficult)

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Implications

• Individuals need to be aware of the structural,
  psychological, and social factors that impact
  their decisions
• eBay sellers and eBay as a marketplace
• Managers and organizations
• Governments

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Future Directions

• Anchors
• Understanding their many effects in individual,
  dyadic, triadic, and social situations
• Costs of high offers in negotiations?
• Auction fever
• Feeling hot ? auction fever?
• Nature of competitive arousal
• Implications for other domains
• Reducing escalation
• Pattern perception in escalation