The anchoring effect in auctions.

On a day-to-day basis many of us attend auctions to try and get a good deal when buying a house, a piece of furniture, artwork or that antique that you have had your eye on for a while. We like to think that our decisions when bidding is not influenced by outside factors very easily, that we make our decisions of how high to bid based on our own judgments. However, our decisions and judgments are more susceptible to outside factors than we would like to think.

In the academic literature the anchoring heuristic is one well known factor that can influence an individual’s decisions. The anchoring heuristic describes the tendency for people to rely heavily on the first piece of information (the “anchor”) that was presented when making a decision. The anchoring heuristic is often followed by a subsequent adjustment that is based on the “anchor”. A recent paper from the Journal of Economic Psychology has investigated the anchoring effect during auctions. The study contained 48 groups of five people who participated in a series of four online auctions.

The results of this study revealed that externally presented values can lead to negative adjustment in open bid auctions, or no adjustment (as expected) in closed-seal bid auctions (auctions in which other bids remain unseen). Additionally, the style in which previous bids were presented in open auctions (e.g., bidding in large intervals / or jumps in value) can cause the use of the anchoring heuristic that influences following bids.

So when bidding for that house that you have always wanted an auction bare-in-mind that you can be easily influenced by previous bidders, when the earlier bidders escalate their bids by large intervals you are more than likely to be influenced by the anchoring heuristic in your following bid.

Source article: Holst, Hermann & Musshoff. (2015).

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Daniel Edgcumbe

I am studying towards my PhD in cognitive neuroscience at a leading London university

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