Almost everyone is familiar with the auction process. To most people, it seems intuitive and logical. But then you could make the same argument about stock trading. ‘Buy low and sell high’ is a line of argument that should appeal to the meanest intelligence, one would think. However, what makes human beings so interesting and their lives so much more exciting is that, despite their wonderful powers of intuition and rationalization, they have a remarkable propensity to act on emotion, often in contradiction to logic and rationality. It is a phenomenon that continues to confound well-meaning economists struggling to steer markets on the basis of scientifically accurate charts and equations. What better proof of this than the economic booms and busts that we are all getting a taste of. Or if you care to be more pedantic, you can use the words coined by the economists themselves – ‘irrational exuberance’ and ‘negative consumer sentiment.’
But in order to fully appreciate this phenomenon, one need not limit oneself to macrocosmic events. Indeed, some may argue that mass hysteria or herd mentality is a phenomenon all by itself that is very well a contributing factor to such large-scale economic upheavals. So why not revert to the microcosm and consider a far more mundane example – the simple auction. On paper, an auction is merely a trade like any other and, as such, the underlying principle should be the same – i.e. pay according to how you value the offer. Aha! But where it gets interesting is if you pack the players in a room and have them hear each other’s bids. As soon as the bids have faces and voices and personalities, the amygdala shifts into gear, adrenaline surges, emotion kicks in and starts clouding reason. A simple trade has now transformed into a competition. No longer are the players acting through the cold and calculating rationality that supposedly only human beings are capable of. Instead, all the primal instincts of possessiveness, territorialism, assertion, fear, greed have crept in. The results are gratifying if you are the seller. (Of course, in a reverse auction, it’s the sellers pitted against each other so in that case, the buyer is sitting pretty.)
It would seem then that it’s not just crowds that tend to play on our emotions. Even a handful of people or indeed just a single human being can trigger emotional reactions that can dissuade reason and sound judgment. So powerful are these basic instincts that the mere suggestion of a human presence is enough to affect us. Take online auctions, for instance, which are now ubiquitous. Even behind the veil of privacy and without the presence of physical cues in cyberspace, bidders tend to engage actively in competition with user IDs insofar as they represent human actors. If you have ever participated in an eBay auction, chances are you have experienced this first hand. CountSpin is a site that uses a dutch auction process (price keeps dropping till the item sells out), so technically there is no overt competition or counter-bidding. But here too, buyers report an adrenaline-laden shopping experience. Indeed it is this emotional ‘thrill’ that draws them to the site, even though one would expect them to act in a fairly mechanical way by weighing the offer and bidding when the price drops within their acceptable range. But then where is the fun in that – the ‘fun,’ in this case, representing the human element that motivates one to try and ‘beat the system’ or ‘push the boundary,’ however you choose to describe it.
In the end, we can lament the current economic crisis and blame crazy markets, reckless players, unbridled greed, etc… but consider this – we all play a role in driving each other mad. It’s only human!
