Why Auction Sites Make Economists Giddy

[mandy]

You might think that if there's one thing an economist should be able to tell you how to do, it's successfully list an item on the auction Web site eBay. Auction theorists are, after all, celebrated in the profession; one of them, Susan Athey, won the John Bates Clark medal in April. (Clark medalists, who include Paul Samuelson, Joe Stiglitz, and Steve Levitt, are scarcer than Nobel laureates.)

Yet, although the theory of auctions is well-developed, its predictions are sensitive to wrinkles in reality. For example, the standard economic assumption that people are rational is usually a good one: When the price of beer rises, most people drink less beer. But auctions require "if he thinks that she thinks that I think that he thinks" chains of reasoning that tend to have weak links. Those links can easily break if any bidder has any reason to suspect that any other bidder is irrational.

Another theoretical conundrum is entry to the auction. Most auction theorists assume a fixed number of bidders, all poised and ready to bid. But while economists can assume bidders into existence, eBay sellers have to go out and hook them...

full article: http://www.slate.com/id/2166662/fr/rss/

[mandy]

A related article:

In Rome, they called it calor licitantis, or "bidder's heat." If you got swept up in the passion of an auction and paid way too much for something, you could plead a form of temporary insanity, and the judges might step in and let you off the hook (and get you your money back).

Good luck finding that kind of help the next time you overbid on that used iPod on eBay. You bid for it, you pressed the button, you bought it.

The Romans knew something that modern economists lost sight of at some point: Auctions lead people to do weird things. For a long time, economists have explored and even reveled in the supposed purity of auctions, viewing them as uncannily efficient means of moving goods into the hands of people who value them the most...

full article: http://www.boston.com/news/globe/ideas/a...EWell_Pos5

[mandy]

Another related article:

Best time to close an auction

Another study challenges commonly held beliefs on when to close an online auction. Many eBay-for-beginners books alert sellers that online bidding spikes as the workday ends on the East Coast and holds strong until the West Coast goes to bed. Guidebook wisdom suggests that smart sellers time their auctions to end during those rush hours.

"You would think it's a good idea, but it's in fact counterproductive," says Uri Simonsohn, a behavioral economist at the University of Pennsylvania. He compared the proportion of bids filed each hour to the proportion of auctions ending each hour. Yes, the number of bids jumps, but Mr. Simonsohn found that the share of auctions soared even higher.

"Sellers have outwitted themselves," Simonsohn concludes. "They think they are smart, but really they don't know that everyone else thinks they're smart, too."

full article: http://www.usatoday.com/tech/techinvesto...yers_N.htm