eBay and the Brain

"LEHRER: What can eBay teach us about human irrationality?

UBEL: eBay auctions help reveal the rational and irrational forces driving consumer behavior. People are often quite rational, after all. Raise the price of a t-shirt and, generally, fewer people will buy it. Reduce the quality of a good, and you better reduce its price, too!

But behavioral economists have analyzed eBay data to help identify some ways that consumers act irrationally. Offer a really low price for opening bids, a price everyone knows won’t be the final selling price, and you nonetheless lure some consumers into making an initial bid. That increases the number of people bidding on the product, which makes it look more attractive, thereby generating even more bids. And then bidders, who knew the price would rise from their initial bids, get emotionally attached to the product, and keep raising their offers.

Now you know why it makes sense to tell people that bids for that Picasso hanging in your living room can start at $5!"

Via: sciam.com