Why do we pay more than we should at auctions?

BBC:

The allure and tension of an auction are familiar to most of us – let’s face it, we all like the idea of picking up a bargain. And on-line auction sites like eBay cater for this, allowing us to share in the over-excitement of auction bidding in the privacy of our homes. Yet somehow, despite our better judgement, we end up paying more than we know we should have done on that piece of furniture, equipment or clothing. What’s going on?

One estimate states that about half of eBay auctions result in higher sale prices than the “buy it now” price. This is a paradox. If the people going into the auction really wanted the item so badly, why didn’t they get it for less by paying the “buy it now” price?

This has nothing to do with the way the eBay bidding system works. In fact, unlike most auctions, the eBay auction process is actually perfectly designed to allow rational outcomes. By allowing you to set a private “maximum bid” in advance, eBay auctions are better for individual buyers than public auctions where everyone has to shout out their bid in public. No, the reason auctions – both on and offline – produce higher sale prices than any bidder originally imagined they would pay is because of one irreducibly irrational part of the bidding process: the bidders themselves.

Read the whole story: BBC