Alternative marketing thinking

iCONTRACT

The Irrational Human

Behind the millions of online auctions at eBay lies a goldmine of data that researchers can use to study human behaviour. Ulrike Malmendier, an economist at the University of California at Berkeley, spent time on the site to understand how people spend their money on auctions. The study has proven once again that shoppers act in unexpected ways. She and her team tracked 166 auctions offering “CashFlow 101,” a personal-finance-themed board game. During the seven-month trial, the game’s designer sold the box set on his website for $195. Meanwhile, eBay sellers usually offered an opening price of about $45 and set a one-click, “buy it now” price of about $125. It looked like a great deal for buyers. They could pay less than retail to end the auction immediately or place bids in the hope of fetching an even lower price. But this is where eBay users fell prey to what Malmendier and her co-author, Stanford University economist Hanh Lee, call “bidder’s curse. “Apparently, some bidders grew so enthusiastic about winning the auction that they lost sight of the “buy it now” price, sometimes offering more than $185. They found that in 43 percent of the auctions the bidders ended up paying more than the ‘buy it now’ price. Malmendier says, they did larger studies involving iPods, perfumes and colognes and in 40 to 50% of times eBay auctions exceeded the “buy it now” price. More on Ebay.

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