Auction theory
Abuelo
Posts: 2,036 ✭✭✭✭✭
So I am reading an academic paper on auction theory and it has this provocative statement: "in an English style auction (where the high bidder wins) , the winner is the first loser" referring to the fact that when one wins, nobody else is financially interested in the object. What do you think?
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Shortsighted.
Nobody else present or bidding is financially interested in the object at that particular point in time.
Exactly. I've known people who drop out of bidding only to approach the winner later and try to buy the item.
There could be several reasons why one does this, one being that the markup from the winner is less than the next bidding increment plus commission on that increment. Another could be confusion or interruption during the bidding process. Yet another could be the order of sale and expenditure of budget at the end of the sale.
I've actually attempted to do this on several occasions and succeeded once (to my recollection).
Agreed. I have many times been fortunate to come away with coins that I had no business winning but the opposition was not at full strength for a variety of reasons.
Well, just Love coins, period.
It's a fun idea. I think that's about as far as you can take the idea. Does the data actually show that auctions consistently bring higher prices than other sales methods? My guess is that they do only under certain circumstances.
IG: DeCourcyCoinsEbay: neilrobertson
"Numismatic categorizations, if left unconstrained, will increase spontaneously over time." -me
Who wrote that ?
I give away money. I collect money.
I don’t love money . I do love the Lord God.
Someone trying to make themselves feel better after losing a lot that they really wanted
Latin American Collection
some auctions are "meant from the start to have certain results", hence the outcome is tainted without other bidders knowing
The Winner's Curse
February 1988Journal of Economic Perspectives 2(1):191-202
DOI: 10.1257/jep.2.1.191
Richard H. Thaler
Just so we know, he won a Nobel in economics precisely for behavioural economics. I paraphrase him a bit, but that seems to be the gist.
Yes. Also, the concept of the Wnner's Curse is almost meaningless when the bidders are not all working with all of the same information.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
@MrEureka actually, would not an ignorant bidder increase the risk? According to Dr Thaler the way to avoid it is if all bidders are rational, and I have never known that bunch when it comes to coins.
I think an ignorant bidder will only affect the outcome if s/he is one of the final two players.
On the flipside to the OPs quote, I do occassionaly feel like a winner after losing an auction. Occasionally someone will save me from myself.
IG: DeCourcyCoinsEbay: neilrobertson
"Numismatic categorizations, if left unconstrained, will increase spontaneously over time." -me
Yes. The more ignorant and irrational the bidders, the less predictable the auction becomes.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
Yes, a bidder's ignorance can cause him to bid too high and visibly impact the price realized. But if his ignorance causes him to bid too low, or to not bid at all, it has a very real but less visible effect on the auction.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
Even if all bidders are rational, that's no guarantee they will all value a coin equally.
All those issues are proving the point right? There is always a degree of ignorance as nobody knows everything, and you are bidding against people that are either more advanced or less, with different interest on a given coin. And of course the coin that we must have... And if we add the impulsivity while bidding, I think this guy is onto something (other than his Nobel of course).
If an ignorant bidder bids too low, as long as s/he is not one of the final two at the end, it shouldn't matter.
That said, if the final two have no rational idea of the true value of the item, then removing even an ignorant bidder from the mix will affect the result.
And, as @Abuelo says, since we are talking coins, not fungible items, other factors are at play (eye appeal, impulsivity, pride and it's cousin machismo, etc.). And let's not forget the biggie: opportunity cost.
I don't see how. For one thing, plenty of dealers buy coins in auctions and resell them for a profit. How does being able to do that make one a loser?
@MasonG the loser could be the dealer if cannot sell the coin later on. I have seen many dealers that buy coins at auctions just to auction the coins later on. Nothing new.
I am not implying that every single buyer always lose but the theory is fascinating. My knowledge on economics, or social economics, is not vast enough to be the speaker of the theory, but I can see his point.
Just because the guy's last name is Thaler doesn't make him an expert on coin auctions...
Experience the World through Numismatics...it's more than you can imagine.
In the paper he describes a series of experiments realized in which a couple of points are evident to him: bidders are usually risk averse, the average bid will be substantially lower than the price of the product, and the winning bid will exceed the price of the product. In numismatics, however, I have a problem with the last point as usually the auction is what sets the price of an item. But we all agree that if a Mexican 8 reales usually goes for 1000, and someone wins it at 5000 likely overpaid for the reasons @pruebas mentioned... or because one overpays when wins :-)
It seems to only work as a theory if you judge the outcome entirely on cash spent and assume the bidder has no interest in the object, only in reselling to make a profit.
But the point of bidding in an auction is often to buy something you want. The cash value you place on that will vary bidder to bidder. The intrinsic value will also vary bidder to bidder. I might be collecting monarchs and there are other coins that will fit that collection, or I might be collecting varieties and this coin is the only one of its kind. Or I might just like the look of this one more than any others I've seen.
The relative wealth of the bidders also matters. In an eBay auction for a coin worth £25, I have no problem bidding £30, even if it should be £25. I got the coin I wanted, and I don't care if you call me the 'loser' for bidding £5 more as £5 won't make any difference to me. In a Heritage auction for a coin worth £2,500, I wouldn't be able to overbid to £3,000 without serious thought. But a billionaire would. We might both value the coin exactly the same intrinsically and even in cash terms, but one of us places a lower value on £500 than the other.
Of course that's a possibility, but the fact that dealers buy coins in auctions for resale is pretty solid evidence that it generates profits for them, otherwise they wouldn't do it.
The only price an auction sets is for that specific coin at that specific point in time. That same coin can easily sell for a different price depending on where it is offered and which buyers are aware of its availability.
I can confirm this statement because every time I win an auction I feel like I'm necessarily the biggest idiot in the world at the moment
it'd be easier if I could just throw it all away on a few magic beans and get done with it
But we all agree that if a Mexican 8 reales usually goes for 1000, and someone wins it at 5000 likely overpaid for the reasons @pruebas mentioned... or because one overpays when wins :-)
You rang 😀
I give away money. I collect money.
I don’t love money . I do love the Lord God.
Coins aren't an "efficient" market is my explanation. (I don't believe in absolute efficiency in any market seeing it as more theoretical.)
Also, as many have mentioned time and time again: In the English auction format, the underbidder sets the price and the winner pays it. I would argue that the high bidder always has company at the top.
IG: DeCourcyCoinsEbay: neilrobertson
"Numismatic categorizations, if left unconstrained, will increase spontaneously over time." -me
Arguably, ignorant bidders only increase the risk for other ignorant bidders.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
@MrEureka unless this is a coin that you MUST have, right?
Yes and no. It can cost you money, but it can't lead you to make a mistake.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
If it's a coin you MUST have, how can buying it be a mistake?
Interesting
Here it is @pruebas
I didn't see this when it first circulated. but I strongly resemble this remark.
They might as well be called 'the first loser', just as there is no sense in that the highest bidder is the 'winner'. You don't win or lose auctions. Either you pay the most someone is willing or able to pay at that moment, or you don't.
If you value the object (coin) more than what you traded for the object (money), you are indeed the winner.
Since this old thread has been revived, enjoy this relevant quote:
"The smartest side to take in a bidding war is the losing side." - Warren Buffett
https://www.goodreads.com/quotes/11940906-the-smartest-side-to-take-in-a-bidding-war-is
Some may agree, some may disagree - but I'd bet that none of us are wealthier than Buffett!
Serving the greater Mechanicsburg and Camp Hill, PA area
https://zenithbullionconsulting.wordpress.com/
"The smartest side to take in a bidding war is the losing side." - Warren Buffett
If someone believes this, they would never participate in an auction to begin with.
Agreed. Buffet wants to buy undervalued and under appreciated companies on the cheap and harvest the revenue streams. He has always been a value investor. There are fewer and fewer such opportunities these days with the internet, AI, and the information explosion, which is why he is always sitting on a huge pile of cash (recent sales notwithstanding).
We all know one must "overpay" to get "good" coins.
Participating in an auction is the exact opposite of value investing. And so is forming a decent collection.
The winners curse is $100 over the last bid. No big deal. It’s equivalent to a taxi to JFK and a drink at the bar in Terminal 8.
He who knows he has enough is rich.
Depends on the auction. I just watched the James A. Stack Dec 2025 sale and the end of the Omega Cent sale at Stack's Bowers. They were not going in $100 increments, I can tell you that much!
Serving the greater Mechanicsburg and Camp Hill, PA area
https://zenithbullionconsulting.wordpress.com/
Yes, but I wouldnt follow what the autistic Warren Buffet does, he just acumulates piles of money without using it for anything, absolutely useless. What does rich mean? Tones of money? For what?
Autistic? Never heard him described that way before
Anyway, he's a value investor. As they say, value investing either 'clicks' right away or it never does. Seems to be sort of a personality test :shrug:
I think that quote was in reference to companies, specifically. Ever read the book Barbarians at the Gate? Leveraged buyouts seemed to be in vogue in the late 80s to early 90s, and the results for the winning bidder were usually...suboptimal. Buffett himself was burned by Salomon Brothers, I believe, in the early 90s. If I'm correct, his quote was in reference to this and similar episodes around that time.
Serving the greater Mechanicsburg and Camp Hill, PA area
https://zenithbullionconsulting.wordpress.com/
There is a difference between auctions for businesses as investment and for collectibles. For businesses investments, you are buying some future income stream, i.e. money, and so there is some price where it is a bad deal, you are paying too much money now for not enough in the future. With a collectible, you get something to keep and enjoy, and that is just the cost of getting it into your collection.
Some people are just cheap. Nobody would bid over melt on silver bars 2 weeks ago on Whatnot, I sniped them all and by the time they got to me in the mail I was up +$120 on the lot.
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