Rogue bidders in auctions, a bizarre behavioral finance anecdote

For years I have been involved in a basset hound pedigree project. The vital data for this project come from the American Kennel Club “stud books.” I had an assortment of these stud books, some via subscription, others from friends of the project. Once the appropriate pages were photocopied and the information entered in a genealogical database (free software compliments of the Mormons), I no longer needed the books. So I could sell them to raise money to buy books the project needed (alas, far more than I owned).

The obvious venue to sell these books was eBay. There were four or five collectors, and the books were going for about $20 a copy. Then came Agnes. The bids would get to the normal topping-out range, and she would place an aggressive bid. The other bidders couldn’t stand to see the book get away from them, and they kept bidding it up until Agnes finally silenced them at a little over $100.

The problem was that, after winning quite a few books (and many other dog-related items, as it turned out), Agnes didn’t pay. eBay eventually expelled her. As soon as I could, according to eBay rules, I contacted all the underbidders in my auctions, explained the situation, and said that I would offer each book that I had auctioned to the person who had placed the highest bid before Agnes entered the process. Other sellers apparently weren’t so generous and agreed to sell the books only at the bid just below Agnes’s highest bid—in other words, for something around $90.

No sooner had I breathed a sigh of relief and thought that things were back to normal than up popped a new persona with exactly the same bidding pattern. Once eBay expelled this second rogue, a third took her place. What was absolutely fascinating was that although the bidding process was about as transparent as possible—that is, virtually everybody knew about the rogue bidder in various personae and the way sellers were dealing with the problem, the legitimate bidders didn’t change their behavior. They kept bidding up the books—a strategy that cost them dearly with other sellers. Sometimes there were two real bidders plus the rogue, so one might surmise that each was trying to be the bid just under the rogue’s high. That would have made some (irrationally expensive) sense when it came to other vendors, but they did the same thing in my auctions even though they knew that my rules were different.

Once Agnes and clones left the scene, one might have expected the price of the books to fall back into the $20 range. But no, Agnes’s $100 bids became something of an anchor and for quite awhile I sold books for the bargain basement price of $30-$40.

Just an anecdote, but it serves to further undercut the model of homo economicus.