“Counterintuitive” bidding: what is it?

Just this week a fabulous industry colleague (and friend) tagged me in his thought-provoking post and asked me to comment on this.

And indeed I could. I take advantage of this phenomenon often.

Tim’s article he handpicked for his post (attached here), explains that the laws of supply and demand don’t always apply to an auction bidding.

Buyer emotion plays an enormous part at auction.

Counterintuitive bidding relates to the number of competitive bidders being inversely proportional to the strength of the bidding. In other words, ….

When there are more bidders, buyers are more likely to become more despondent about their chances of winning.

“Professor Agnieszka Tymula of the University of Sydney called the dynamic “counterintuitive.”

She explained, “Usually auctioneers would assume that the more bidders there are in an auction, the more money they will make – the logic being that that the more bidders there are, the more likely it is that there is a bidder with a high willingness to pay for the goods.

“However, it turns out that there is also a downside to having more bidders – most people bid less.” ” (Australian Broker News)

Buyers dread auctions for a few reasons;

• Fear of the public nature of the exercise (akin to public speaking where a bidder is essentially on stage with a crowd watching on),
• Discomfort about the ‘unknown’; there are so many possible ways an auction can go for a bidder
• Anxiety about price-setting
• Inexperience with tactical bidding and/or negotiating
• Dread of missing out

It is the latter point that is of interest when it comes to the number of bidders.

I often see a highly competitive fight at auctions when two people are fighting it out for the keys. Each bidder is spurred on by the other, and an effective auctioneer will be able to play on this and encourage the bidders to continue increasing their bids. I have literally seen hundreds of bidders over the years who have made an additional bid after they’d signalled they were out. Some of the emotive auctioneer lines include;

• “How do you know it’s not their last bid?”
• “Right now this lady has the keys. Are you going to let her buy it?”
• “Do I have your permission to sell to this buyer?”
• “Just another $500 could buy it?…”

Auctioneers know exactly when to play a bidder off another bidder.

It’s when multiple bidders get involved in an auction that things get more challenging for an auctioneer who is relying on spurring bidders on. Bidder enthusiasm is impacted when multiple bidders start putting their hands up at auction. People are less spurred on when they feel that their chances of success are diminishing.

As professional bidders, our bidding style and timing of bids will take advantage of this dynamic. We may initiate the bidding by throwing out the first bid, but any observer will see that we often stay quiet while other bidders are jumping into the auction. We observe body language, glean ideas about the strongest opponent, and find our place in the crowd to have maximum impact. It is not until the ‘business end’ of the auction that we’ll chime back in with our bidding ‘blow’.

A firm bid from a third bidder can surprise two sparring bidders. In many cases, it can shut down the auction altogether. Sometimes Buyer’s Agents will have two bidders at the auction to give the impression of a final ‘surprise’ buyer who steals the show and takes the keys. We have employed this strategy in certain situations in the past to shock an array of bidders.

The fear of defeat is amplified by a broad number of bidders, and sometimes buyers will opt out of the auction process altogether on the basis of this perception.

Buyers shouldn’t be discouraged to bid by perceived competition strength.

Having a clear upper limit and bidding with confidence is their best chance of success.