Sunday, March 14, 2010

The auction site that’s pure temptation

Financial Times article "The auction site that's pure temptation" (March 13th, 2010) analyzes Swoopo, an online auction site that (broadly speaking) allows bid increments of some small amount, and charges for the bid itself. This has lead Swoopo to have some seemingly contradictory results that the Times does not offer to explain simply.

Richard Thaler, a behavioural economist who also has a New York Times column, looked at 26 occasions on which Swoopo had simply auctioned $1,000 cheques. The average revenue was $2,452. No wonder the pitchforks are out.

The article also notes that Brigham Young professors argue irrational or risk-loving individuals focus on consoles, and that Swoopo gets a 50% increase in price from a comparable amazon good.

All these explanations seem to forgo Occam's Razor: Swoopo is intensely fun to watch (and, without a stretch of the imagination, to play in). It is packaged entertainment and bidding. The clock ticks down, and one grows closer to almost getting a prize. Even losing money on Swoopo makes sense, as the bidding site can be nerve-wrackingly intense. The explanations of "sunk cost fallacy" and "irrational consumers" or "risk-loving individuals" seem to "jump the gun" in the mind of Corrections--it seems pretty straightforward.

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