It should be easy, just don’t bid… right?
We often hear horror stories of people going way over their budget during an auction and trapping themselves in a deal that can’t be reversed. Any rational person would argue that it should be pretty easy to refuse the allure of bidding ludicrous amounts on an item with complete disregard for its value. Now let’s shed some light as to why it happens.
So, Why Do People Overpay At Auctions?
These are a few reasons why…
- Sense of Urgency
- The Principle of Scarcity
- Uncapped Prices
- Everybody Else Is Bidding
- Fear of Missing Out
Sense of Urgency
I’m sure most of the people reading this are familiar with the usual auction set-up. A room or an outdoor area with a group of people following an auctioneer. The object of interest is placed on the auction table and a starting price is set. The tension builds in the room as the bids start going higher and higher. This pressure is often the reason why people are more susceptible to bidding higher than what they would have originally bought the item for, and it has a name: auction fever. More often than not, people who get caught in it start making more and more irrational decisions.
The Principle of Scarcity
Auctions often operate on the premise that the item that is being sold is only available for a limited time. Bidders will often feel compelled to continue bidding on an item as it is their “last chance” to get a hold of it, without paying much mind to its actual value.
Auctioneers have a lot of influence in this phenomenon, often using targeted words to rile up the crowd and make it seem like an item is worth more than it actually is.
This one is pretty obvious, an English auction’s goal is to sell an item for a value at or above its original asking price. Auction houses all around the world have little to no policies setting limits to the price at which an item can be sold for. Everything is “fair” as long as someone bids on it.
It’s easy to see how this can be problematic, as there will often be people who are susceptible to challenges like this and show complete disregard of their financial limits.
Everybody Else Is Bidding
There is a psychological phenomenon known as “social proof” that applies to all cases of auctions. It is described as using the actions of the people around you as justification to act the same way.
In an auction, you are bombarded with people placing their bids which then tricks your brain into thinking that the item on sale is very valuable and that you should also bid along with them.
The Auction Catalogue
This ties very closely to our previous reason as to why people overpay at auctions. If you aren’t aware, auctions nowadays often have catalogues that are sent to bidders ahead of time, to give them a complete list of the items that will be going on sale. This immediately creates a connection between the buyers and the items that they want to acquire.
By knowing beforehand which items you want, you become more inclined to bid more. This effect is especially strong when the item has a symbolic or emotional significance to the buyer.
It goes without saying that one should always practice self-control in all aspects of life. Auctions are no exception to this rule, and you should always remember your limits, and carefully weigh the pros and cons of continuing to bid and pursue an item of your liking.