The Underbidder Theory
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“The Underbidder Theory” → The winning bidder sets the story, but the underbidder sets the price.
Interesting article. Comments?
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Written by AI.
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Thanks for your useful contribution to the discussion.
I particularly agree with this thought from the article, especially as it applies to items with only two or three bidders willing to compete to the end. IMO, coin auctions always hinge upon the momentary demand and not the supply. If the demand at a given moment is essentially two or three bidders, then you may not really reach the "boundary of value" that multiple motivated and competitive bidders would reach.
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I found it useful.
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The best collecting goals lie right on the border between the possible and the impossible. - Andy Lustig, "MrEureka"
Had a discussion in this very forum about how the winner was the first loser. There is a whole series of economic studies on that.
https://forums.collectors.com/discussion/1064731/auction-theory#latest
Winners Curse: If everyone has the same information and tries to estimate the value of an item, and submits a bid matching their estimate, the winner almost certainly overpays.
Example: Someone at the county fair has a giant jar of pennies. Offers to sell it to the highest bidder. Big crowd lines up to submit estimates on paper slips. Bidder almost certainly overpays, as it is novel and hard to judge and many will overestimate.
Reality: Auctions aren't "one shot." There are always more auctions. People who overpay, run out of money and drop out of future auctions. "Rational bidder problem" means that people shade bids lower so they don't win too often and sometimes win bargains.
Fallacy: The Winner's Curse emerges in novelty and one-time events, not in recurring auctions.
Practical reality: Heavily promoted auctions tend to be overpriced (Stack's Privy, Fairmont Hoard) but routine less followed auctions often present screaming bargains.
Most people already have intuition about why auctions are good or bad, but struggle to articulate the "magic trick" in puzzles like the Winner's Curse.
The article was well done up to the “imagine a future” part, which is mostly silly. The market will never be that transparent, for two reasons. First, people will always prefer to withhold information that can be used against them. And second, because people often change their mind on the fly, for all kinds of reasons.
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I think the quote is accurate if you have an appropriate distribution of bidders (say 30,) there aren’t any external factors (ie the electricity went out,) their attention isn’t on other items, there’s only one available in the auction, silver or gold isn’t particularly high/low…you see my point? Value or interest isn’t the only reason people don’t bid on something.
I'm BACK!!! Used to be Billet7 on the old forum.
When I WANT a coin, I will pay whatever to get it.
That is what they are counting on us doing.
When I was a noob, I remember paying a record price for a copper Mexican pattern. A moneyed long-time dealer seated in front of me laughed at that, but I wanted the coin for whatever reason (lost to time). You see, the coin wasn’t “worth” what I paid. All the old-timers knew that. But me being the noob didn’t.
Funny thing though, all future occurrences of that coin traded much higher from that point onward. Almost equal or equal to the price I had just paid. Even if they didn’t have the special quality that attracted me to pay a record price in the first place.
Fast forward to today, and the situation is reversed. I see some of the prices being paid for coins that aren’t “worth” what is being paid. They’ve never traded at those levels! And yet the current noobs, who know no better, are paying them.
Funny how this goes. The curse of “experience!”
Folks that don’t advance with the times get left behind.
I’m not exactly why I brought this up as it’s not exactly related to the article. But I do agree with @MrEureka though for more than the two reasons he states.
Edited to add: Now I remember why I bought this up. In both cases, there were underbidders who set those prices. So even if I thought I was setting the new price, I wasn’t. The underbidder was. I was just the one being laughed at!