Penny Auctions: The War of Attrition in Practice

Did you know that when you bid on penny auctions you’re actually partaking in a game theory problem? It’s called the War of Attrition.

War of Attrition Defined: a contest that is settled without any escalation (no chance of injury from direct interaction between the contestants) with the winner being the individual who is willing to pay the most (essentially via display) to obtain the resource.-College of the Holy Cross, MA

xbox

The winner of this Xbox on Bidrodeo spent $127.82 in bids and won, the others lost.

Let’s say you’re bidding on an item worth $299, you’re always bidding against another bidder, and you each take turns bidding for the item. After each bid your opponent places you may choose to either bid or to walk, so may the other bidder. It’s obvious that the first bidder to drop will walk away with nothing, if you don’t drop you can win the auction and walk away with the item, this is if there were only two bidders. The odds of you winning with more bidders bidding becomes greatly diminished, but it depends on how many bids the other bidders will place and when they will stop bidding. Sometimes it’s better to be bidding against multiple bidders than one-on-one, ego comes in here (more on this later).

But do the odds really become less or greater? Since you don’t know how many bids the other bidders will place, you only know how many bids you will place. Is there any predictability? Some argue that they are able to “size bidders up” by keeping tabs on their bidding style, but your opponents could change this up at any time and anyone can enter the auction and bid at any time.

Both bidders can choose to walk away, you or your opponent, whoever stops bidding will forfeit the item and the money spent (in bids) to try to win the item.

With each bid placed you’re losing $0.75, so when do you call it quits? When you run out of bids or do you ever?  When you spend the value of the item and want to try to cut your losses by winning and not walking away with nothing? Or do you only spend a % of the item’s value so you don’t lose too much then stop bidding?

What is winning worth to you? Do you bid to win at all costs?  there are some that do, (don’t answer this question with your bidding username, if you choose to).

The Winners Curse: The cost to win an item ends up becoming more than the item’s value, this happens quite often in penny auctions. Here’s a good lecture from Yale University that illustrates Winner’s Curse:

 

Is There a Secret Strategy?

Many have argued that there’s strategy involved in penny auction bidding and we’ve really tried to think up various strategies and put them in practice over the past year and a half, but we’ve really come to conclude that there is not much real strategy.

Only different modes of bidding. Ultimately, to win you must be the last man standing, so to speak,  so in order to win you must bid until you win (obviously).  Just when you think you might be able to win, a new bidder armed with hundreds of bids could come in, but is this what makes the game exciting?

How do you feel when you bid?

Do you get stressed out after you’ve poured more money into winning and you’re still hitting bid?

How do you bid?

Well, you could do this a number of ways, from bidding each time an opponent bids against you, not  letting the timer drop more than a second (we call this bid throttling), to sitting back and only hitting the bid button when the timer ticks down to mere seconds before 0, all while watching your opponents bid more than you do. Or,  you can wait until the auction has been going for quite some time and then begin to place bids after you think you observe weakness (let’s say the bidders have lost a significant amount of money) in your opponents, but this does not guarantee that either of the current bidders will back down and let you win after you start bidding.

And then, Why do you bid?

Maybe you end up getting great deals on items, maybe you resell what you win or keep the items for yourself. Maybe you just enjoy the feeling of winning, or you became hooked after getting a significant deal. Or maybe we’re missing something, tell us why you bid!

 

dunny kronk

Beware:  Emotions & Ego Can Take Center Stage

Are you an emotional or competitive person?

Ok, maybe you’re not characterized as either of these, nor have you ever been known to show signs of anger nor have you ever let your ego cloud your perception, that was until you started bidding on penny auctions.

Losing – The Major Downside to Penny Auction Bidding

Ego has been known to overtake a lot of people while bidding, after all, they’re spending their money & time and just want the auction to end, but at the same time they want to win the item so ruthlessly that they will, haphazardly and at all costs bid, and purchase more bids until they win.

Is this a problem? It can be if you are overtaken with a drive to win and you’re not careful. Some penny auction bidders have spent much more in bids than they have in items won. Some argue that they bid for fun and don’t care if they have to spend more in the process.

Becoming reactionary by succumbing to ego and refusing to see defeat and let go of winning an auction can come with consequences, and unfortunately, bidders that let this happen are oftentimes reminded with their monthly credit card statements.

If you would like to diminish your losses you may be interested in trying sites that offer a bid-to-buy option, where your bids can be put towards purchasing the item.

  • After taking all of this into consideration would you still try penny auctions?
  • Since you have no idea of knowing when your opposing bidders will stop bidding and you will be able to win, what do you do?
  • Would you say that there is pure strategy involved or is winning penny auctions merely a matter left to chance?
  • Let’s talk about it!

    Dunny http://www.flickr.com/photos/hyperballad_/3908423454/


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    6 comments… add one

    1. Excellent article PAW!

      On a traditional Penny Auction model, it’s bull-headed persistence (and even after that you may lose) and the outcome is a matter of pure luck! This is precisely the reason we opened SmartBid, (a lowest unique auction with bounded range and a limited number of bids allowed) – where the outcome depends on pure strategy (ask some of our winners – they will vouch for it) and not on luck!

      Come check us out @http://thesmartbid.com and let us know what you think of our auctions – We are always open to hear your feedback and make the site better for all of you!

    2. Sandip

      Winner24 is a nice website for Online Auctions. It is a Penny Auctions site so bidding goes up 1 penny only. It sells new products at low prices in auctions. You pay for the cost of bidding of 0.75 to start your biding in auctions. All auctions start at 0.00 with no reserve. If you’re a highest bidder when the counter reaches to zero you would win the product that you are auctioning for.

      Winner24 is a nice place for Shopping too, because If you don't win the auction, you never have to leave Winners24 empty handed. Any time after you've placed your first bid in an auction, you can choose to buy the product for a discount, getting back the cost of the bids you placed in that auction. You'll never have to pay more than the Worth Up To price for any products on Winners24.

      Resources :
      http://www.winners24.com/ http://www.winners24.com/auctions-online/ http://www.winners24.com/shopping/

      1. blockedhen

        for those of you that cant read , comments are based towards the article in question not for the purpose of advertising your site, or website you visit,

        amanda i know im a bit late lol but just came upon this article

        1. Amanda

          NP! Thanks blockedhen it’s an old article (there’s tons of those!) :)

    3. frosty

      It's all a scam and it needs to be regulated.

      1. Amanda

        Regulation is necessary.

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