Ebay overbidders smell the fear

 

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By Matthew Sparkes

Posted on 26 Sep 2008 at 10:06

Scientists have discovered that a fear of losing may be behind enthusiastic Ebay users paying too much for goods.

Research in the past has shown that people tend to overbid for items in auction situations, but it has until now been put down to the excitement of winning.

New research from the New York University published this week in the journal Science, shows that the opposite may be true - people tend to bid too high because they are scared of losing.

The experiment involved participants taking part in either a lottery or an auction, while scientists monitored reactions using a functional magnetic resonance imaging (fMRI) machine. It was found that the reaction to loss in an auction was far higher than in a lottery.

Even more revealing, the research showed that the greater a person's reaction to loss was, the higher the tendency to overbid.

To confirm the hypothesis, the team conducted another experiment where one set of people was told they would win a $15 bonus if they won the item, and others were given $15 and told that they would lose it if they lost the item.

Despite the outcome of both scenarios being exactly the same, the people who stood to "lose" money tended to overbid.

"Such a result would not have been predicted by existing economic theory," says Andrew Schotter, a professor in NYU's Department of Economics.

"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."