Comments on: Iraq War = Dollar Auction

By: phil

phil — Thu, 20 Sep 2007 11:40:14 +0000

great post!

check out thaler’s book ‘the winner’s curse’ for much more on the subject….

By: Brendan

Brendan — Wed, 19 Sep 2007 06:14:48 +0000

haha yes! i tried to play it with coworkers at lunch but they werent dumb enough :) i’d still play though.

By: Andrew Parker

Andrew Parker — Wed, 19 Sep 2007 02:15:26 +0000

Killer comment.

Reminds me of the recent study of the irrationality of participants on
ebay in determining the value of goods (they do stuff like fail to
incorporate shipping into their valuation, and will even accidentially
bid beyond the “buy it now” threshold in order to not lose an auction,
and other irrational behavior).

By: Hugh Lang

Hugh Lang — Tue, 18 Sep 2007 22:57:55 +0000

That’s also one of my favorite stories. I first read about that one in Peter L. Bernstein’s book “Against the Gods”, one of my favorite books. Bernstein explains the irrationality of auction bidders as a matter of utility. “Utility”, if I can get this right, is the value you place on something you have versus your desire to win (or not lose) something else. Utility explains why some people will gamble what little money they have (on lottery tickets, for example) in exchange for the chance of winning something nearly impossible to attain. In contrast, others with plenty of wealth see little opportunity in gambling.

Auctions are often like that too. The fear of not winning is a big driver for irrational bidding. And auctions primarily deal in illiquid goods with temporal availability. So bidders are extra worried about losing the opportunity.

I dug up this bookmark, which is not directly related to this story, but still interesting to read. (Click through to the referenced article) http://paul.kedrosky.com/archives/001910.html