What's the explanation for people's apparently irrational bidding schemes on eBay? I don't understand why almost everyone, myself included at times, will place an initial bid on an item that's lower than what they're actually willing to pay and then watch the item like a hawk as it nears the end of the auction and continually up their price if they get outbid. There's no reason to get into a bidding war on eBay, since the system automatically increments your bid as necessary up to your maximum. The only reason to continually up your bid near the end of an auction is if the price you're willing to pay keeps rising... but why would that be the case? Because there's some pride in winning, or because you misjudged your maximum price earlier? In either case, it seems the wise thing to do would be to stick with your earlier, less impassioned maximum.
However, there's at least one instance in which I can imagine rationally wanting to increase a bid: if you're bidding on multiple similar items. You may not want to put in high bids at the beginning because you won't want to win all the items at high prices, but as you start to lose some items you can increase your bids on the remaining items to increase your chance of winning at least one.
Anyway, I generally try to exert self-control and not increase my initial bid when someone tops it. Yes, I want to win, but the item doesn't suddenly become more valuable to me just because someone outbids me. I open with the highest price I'm willing to pay and let eBay increment the price up to that level. If I lose, I lose because the price went above my estimation of the item's value.
Yeah, but you didn't see that tweed coat up close like I did.
It's probably just me, but I've always felt that somehow, if I place a really big bid early, then the winning bid tneds to be a lot higher... sort of taking advantage of other people's complacency? Or maybe I'm just nuts :)
DD: Is it stuffed with hundred dollar bills or something? :)
fuzz: It would be interesting to do some research into that observation.
MW: It'll be stuffed with something!
Yes, I have watched auctions because several of similar items are going on at the same time, and I wanted only one. Also, I got suspicious.
I was bidding on a bunch of different cufflinks from the same seller. All the auctions ended about the same time. Interestingly, I was the second highest bidder on almost all of them (except for the one I was the highest bidder on)... also interestingly, it seems the highest bidder bugged out =extremely=soon= after the auctions were over, and I got one of those "second chance" emails. I told the seller to go away.
One reason for increasing your bid at the end would be the cost of the lost opportunity. If you really want the item, and if you are going to have to go back and bid again, or worse, pay retail, then you begin to evaluate those costs as compared to the cost of raising your bid a bit.
There is a great deal of game theory dealing with auctions, and I am familiar with one rational explanation for this seemingly irrational behavior:
Assume that everyone receives some information as to the true value of the item. If other people are placing higher bids then it indicates that they have information (that you do not have) about the true value of the item that is leading them to place these high bids. Depending on how you update your beliefs about the value of the item based on the observed bids, you might then increase your valuation of the good to a level where you place an even higher bid. (For example, you might conclude that DeoDuce has just bid up the price of the coat because he has seen it up close, which means that it is worth even more that you had previously thought.)