Brain Imaging Study Provides New Insight Into Why People Pay Too Much In Auctions

ScienceDaily (Sep. 25, 2008) — Auctions are an old and widely used method for allocating goods that have become increasingly common with the advent of internet auctions sites such as Ebay. Previous economic research has shown that in an auction people tend to bid "too high," or overbid, given the value of the item for sale.
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By combining brain imaging techniques with behavioral economic research, neuroscientists and economists at New York University were able to provide new insight into this tendency to overbid. Specifically, they show that the fear of losing the social competition inherent in an auction may, in part, cause people to pay too much. The research, which suggests an expanded role for neuroscience in understanding economic behavior, appears in the latest issue of the journal Science.

The goal of the study was to provide insight into the neural circuitry of experimental auctions, and then to use this insight to generate and test a novel economic approach to understand overbidding. It was conducted by a team of NYU neuroscientsts and economists. The neuroscientists were NYU Professor Elizabeth Phelps and Mauricio Delgado, now an assistant professor at Rutgers University in Newark, N.J. The economists were Andrew Schotter, a professor in NYU's Department of Economics, and Erkut Ozbay, a former NYU doctoral student and now an assistant professor in the University of Maryland's Department of Economics.

The researchers used functional magnetic resonance imaging (fMRI) to examine patterns of brain activation as participants played either an auction game with a partner or a lottery game. In both games participants could win money, but in the auction game winning depended on outbidding a partner. An examination of activation in the striatum, part of the brain's reward circuitry, showed the primary difference when winning or losing in the auction vs. lottery games was an exaggerated response to losses in the auction game. The magnitude of this exaggerated loss response in the striatum during the auction game correlated with the tendency to overbid, suggesting the intriguing hypothesis that perhaps the prospect of losing the social competition inherent in an auction may lead people to bid "too high."
To confirm this hypothesis, a follow-up behavioral economic study was conducted. Three groups of participants played an auction game against a partner under different circumstances. The control group was simply given values and asked to make bids. The Bonus-Frame group was told that if they won the auction, they would also receive a bonus of 15 experimental dollars. The Loss-Frame group was given 15 experimental dollars prior to the auction, but participants were told they would lose the 15 dollars if they failed to win the auction.

In both the Loss and Bonus-Frame conditions, only the winners would get an additional 15 experimental dollars, so the auctions were strategically identical. The difference was simply the way it was framed to emphasize losing or winning. Consistent with the hypothesis that contemplation of loss may, in part, drive overbidding, participants in the Loss-Frame condition consistently bid higher than the other two groups, resulting in a greater potential profit for a hypothetical auctioneer.

According to Schotter, "such a result would not have been predicted by existing economic theory. While there have been investigations of overbidding which have attributed the phenomenon to either risk aversion or the 'joy of winning,' it was the use of imaging data which allowed us to distinguish between these conflicting explanations and actually arrive at a new and different one, the 'fear of losing.' Our results provide evidence of how an understanding of the neural systems of economic behavior might inform economic theory."

"These results highlight a role for the contemplation of social loss in understanding the tendency to bid 'too high' in auctions and emphasize the importance of considering social factors in economic decisions," Phelps explained. "By combining neuroeconomic and behavioral economic techniques we were able to provide novel insight into a classic economic problem."

"Although there have been a number of neuroeconomic studies that have used economic games to further our understanding of brain function, the benefits to traditional behavioral economics as a result are unclear," Delgado added. "Because of recent advances in neuroeconomics and our knowledge of the neural circuitry related to reward, we were able to use neuroimaging results to highlight the importance of framing, and specifically the contemplated loss, as an explanation for overbidding during experimental auctions."

Nelson barrel makes £8,160 in Bonhams auction.

A box believed to be made of wood from a barrel that held Admiral Lord Nelson's body on its voyage back to Britain from the Battle of Trafalgar was sold for £8,160 at auction yesterday.

The box was one of several items of memorabilia associated with the naval hero in a marine sale at Bonhams in London.

They didn’t have deepfreeze in those days, so his body was sent back in a keg of brandy. I read, somewhere, that the sailors tapped the barrel and that the admiral was fairly ‘sniffy’ when it was opened in London.

£1,000,000 note for auction

Spink are to offer a £1m Treasury Note. Dated London 30 August 1948, and printed with the red serial number 000008, it is one of only two surviving examples from the nine thought to have been printed in connection with the Marshall Plan.

They were intended for internal use as “records of movement” and were in use for only a period of six weeks.

Unlike the usual banknotes, which carry a promise from the Bank of England to pay the bearer on demand the sum shown, this Treasury Note states that it “entitles the Bank of England to payment of one million pounds out of the Consolidation Fund of the United Kingdom”.

Number seven was first sold in 1977 and is listed in the Guinness Book of Records as being the highest denomination note in private hands.

Estimate is £40,000 and will be up for auction in Spinks sale on October 1st.

Olympics furniture auction given cold shoulder

The Olympics and Paralympics might have left many Chinese with fond memories, but that isn't translating into buying interest at auctions for memorabilia and furniture used during the events.

More than 60,000 pieces of furniture used during the dual Games, as well as souvenirs, got the cold shoulder at an auction on Thursday, according to the Beijing Times.

The newspaper reported on Friday that the auction, the third of its kind, drew only 17 bidders for beds, mattresses, desks and refrigerators. The items were mainly from two media villages -- North Star and Huiyuan -- and were offered in 18 lots.

Four lots comprising 13,000 items only sold after their asking prices were slashed by 10 percent.

The remaining 14 lots, involving more than 50,000 items, went unsold, said the newspaper.

Einstein’s watch for auction

A Longines watch which belonged to the Nobel Prize winner for the theory of relativity, Albert Einstein, will be auctioned on October, 16th in New York by Antiquorum.

The 14ct gold wristwatch was presented in Einstein in 1931 and is estimated to make $25,000-$35,000

ANIMAL ART AUCTION.

A lion from the Blank Park Zoo in Des Moines will be one of several zoo animals whose artwork will be auctioned Tuesday in Milwaukee.

The unusual auction will raise money for the zoos to help with wildlife conservation efforts.

The other artists from around the U.S. include two Milwaukee County Zoo penguins and a porcupine from Pueblo Zoo in Colorado.

Sixty-one items are listed for sale at the live auction. The auction will run from 4 p.m. to 7 p.m. and be streamed online.

The Auction Network is holding the sale during the Association of Zoos and Aquariums' annual conference in Milwaukee.

Liquid gold . . . 150-year whisky up for auction

A BOTTLE of Scotch whisky believed to be the oldest in existence is to be auctioned later this month.

The Glenavon Special Liqueur Whisky, believed to be almost 150 years old, is expected to fetch between £5,000 and £10,000 when it goes under the hammer at Bonhams on November 29.

The bottle, which is unusually small in size, contains about 14 fluid ounces of pale gold liquid and is believed to have been bottled by the Glenavon Distillery, in Banffshire, Scotland, between 1851 and 1858.

The precious whisky bottle has been in the family of a woman in Ireland for generations

Kidney for sale in online auction

A Pakistani has put his kidney up for sale at a leading auction website of the country.

In recent years, Pakistan has emerged as one of the largest centers for commerce in renal transplantation but an anonymous 26-year-old "healthy male" deciding to sell his kidney on bolee.com is a pointer towards the thriving trade.

An advertisement on 'Pakistan’s First Auction Site’ reads, "Kidney for Sale: I am a 26-year-old healthy person and want to sell one of my kidneys for AB+ compatible person. My demand is Rs 600,000 (operation and other medical expenses will be borne by kidney purchaser)."

There have been no bids yet.

According to a recent research, Pakistan has now emerged as one of the largest centers for commerce and tourism in renal transplantation. Of the 239 kidney vendors contacted by the researchers, 69% were bonded labourers, 12% labourers, 8.5% housewives and 11% unemployed.

Their mean age was around 35 years. Though kidneys are sold for about $1,500, post-operation the donors hardly ever benefit.

CHURCHILL PAINTING EXPECTED TO MAKE £150,000

A painting relegated to an attic for the last thirty years is about to make it’s unappreciative owner a tidy sum when it comes up for auction later this month.

The painting – Windlesham Moor - was given to the vendor by his mother who was secretary to one of the PMs colleagues.

SCOTLAND’S FIRST NUMBERPLATE FOR AUCTION.

One of the earliest number plates ever issued could go under the hammer later this month.

The registration mark "S1" has been estimated to fetch between £200,000 and £250,000.

The historic plate was the first registration number to be issued in Edinburgh and it belonged to a leading pioneer of motoring.

This month's sale marks the first time the registration number has come on the market since it was created in 1903.

“£100 ewer” expected to make $5,000,000.

A 1,000-year-old carved rock crystal ewer will go on auction at Christie's Islamic art sale next month.

This ewer, one of the only seven known surviving rock crystal ewers, will fetch some 5.3 million dollars, auctioneers estimated.

The piece was produced for the court of the Fatimid rulers of Cairo in the late 10th or early 11th century.

Embellished in enameled gold mounts made in 1854 by a French silversmith, it is the same ewer that came up for auction in Britain last January, expecting to make £220,000, or more than one thousand times its pre-sale estimate.

Experts however discovered the ewer to be an extremely rare one from the Fatimid dynasty though it was catalogued as a "19th century French claret jug" valued at £100-200.

Christie's said the January auction was stopped as such "by agreement," but giving no further details.

The Fatimid dynasty, ruling parts of Northern Africa and the Middle East, became so impoverished that much of its Royal Treasury had to be sold, including the ewers.

The ewer was carved from a single piece of flawless rock crystal which was hollowed out and carved by hand, and was decorated with cheetahs and link-chains.

Christie's is to hold sale of Islamic and Indian art on Oct. 7 in London.

Marilyn Monroe ‘love’ sofa up for auction

A sofa on which actor Glenn Ford supposedly made love with Marilyn Monroe is to be auctioned off in October.

Peter Ford, son of the actor who died in 2006 at the age of 90, said his father secretly commemorated the rendezvous on the eight-foot long plaid couch in his Beverly Hills home.

Glenn Ford marked the event by writing on the back of an oil painting that was dear to Monroe and hung near the sofa, Peter Ford said in a statement.

"When we made love she whispered, 'I wish I could die now, while I'm happy,'" Ford wrote on the back of the painting. The story first came to light when Peter Ford discovered the writing after his father's death.

The auction on October 4-6 by Heritage Auction Galleries in Dallas, Texas, will also feature other personal items from Ford's estate.

Queen Victoria's stockings make £8,000 in auction

A pair of Queen Victoria's stockings has fetched £8,000 at auction in the Mackworth Hotel near Derby.

The black and white stockings were bought for the Ruddington Framework Knitters' Museum in Nottingham by David Alcock, whose father-in-law Jack Smirfitt was a curator at the museum.

Mr Alcock, a 52-year-old mechanic from North Wales, saw off bids from as far away as Canada for the stockings, which were discovered in the loft of a former teacher.

The list price for the stockings in the auction's catalogue was £200.

After his successful bid, Mr Alcock said he bought the stockings for the museum on behalf of one its curators, his father-in-law, Mr Smirfitt, who died in May.

Helen Brownett, a curator at the museum, said: "They were probably made in Nottingham or Derby. It was really important to keep them local and where the public can see them. If they had been bought by a private collector the public wouldn't see them."