Greedy Goblin

Friday, June 19, 2009

Would you buy $1 for $20?

Of course not! - you'd say. One really-really has to be stupid to pay $20 to buy a one-dollar bill.

Yet, conditions can be created (and often are) to make rational, but short-sighted people to do so.

The typical dollar-auction is:
  • bid start at 10c
  • if you are the highest bidder, you get the dollar for your bid
  • if you are the second highest bidder, you get nothing, but still have to pay your bid
Bidding 10c is rational as you can get 90c profit.
Over bidding this is rational as you get 80c profit for bidding 20c.
When the bid is at 90c and you have an 80c bid, not bidding would cost you 80c. Bidding would mean $1 income for $1 cost, zero profit.
When the bid is at $10.1 and you have $10 bid, not bidding would cost you $10 while bidding (and winning) would only cost $9.2. So bidding is always rational.

Obviously one should recognize that the bidding war will not end anytime soon, so bidding would do nothing but increase your loss by 20c. However, besides the rational part, there is also an irrational: the person wants to win, as he wants to avoid the status of "loser".

Such bidding wars can happen when two parties are investing more and more resources to win over the other. For example to be gladiator as prot, you must farm lot of PvE instances. Quiting would mean abandoning these resources. They were all for nothing, plus others will think of you as a loser.

The simple suggestion would be keep out of these traps. However the competitor is not always visible. For example my GF went to the fishing extravaganza to get a better fishing pole. She did not expect competition, believed that no one cares about it nowdays. Well, there was competition. Huge. You can get out three ways:
  • Simply by giving up, abandoning the resources. Instead of saying "I already learnt the optimal pattern of seeking tastyfish schools, I'll have better chance next week", my GF accepted that half an hour as lost and never came back.
  • Instead of competing blindly, you can come to an agreement with your competitor. The traditional dollar auction can be stopped by offering your competitor to split the dollar. You can stop such a bid war on the AH if you have just one competitor. It does not work with fishing extravaganza, as there are too many fishermen.
  • Some external factors can stop the competition, forcing the parties to accept their current position. They later can choose not to start bidding war again. Such is the case of Markco, whose race against other PvP-ers will end with the season. Maybe he'll be #1 when it happens, maybe #2000, he'll have to accept it. The new season will need new gearing so the bid war will start again, and he expressed he won't participate.


DarkKnight said...

I guess the 'dollar-auction' shows similar treats as the undercutting war on the AH. And there it is the case of sometimes taking the loss and stopping the undercutting. This probably means losing either the AH deposit and/or gold because of underpricing, but it is most likely the least amount of loss.
If a market is declining in price it might be the smart thing to just cut your loss and move away, which is sometimes hard as indeed no-one wants to be a 'loser' and have a loss in the first place.

Or you could try and keep undercutting and eventually buying out your competitors cheap auctions, thriving the prices up again. Although that's quite tricky and sensitive for a lot of variables.

ps. Last time I tried for the Fishing Extravaganza, I was also surprised by the large amount of competitors. I also just walked away after the ~30 mins of fishing and haven't gone back yet (this is like half a year ago ;)).

Fawr said...

@darkKnight:Undercutting really is a different mechanic (unless its for books of glyph mastery which are deflating rapidly) as if you good doesn't sell you get it back in the mail and can try again later.

I agree about the fishing comp though.

Carra said...

Dollar auctions are a hidden form of gambling and borderline illegal. Jef Atwood made a nice blog post about it recently:

There's something else at work here, though, and it's almost an exploit of human nature itself. Once you've bid on something a few times, you now have a vested financial interest in that product, a product someone else could end up winning, rendering your investment moot. This often leads to irrational decisionmaking -- something called the endowment effect, which has even been observed in chimpanzees. So instead of doing the rational thing and walking away from a bad investment, you pour more money in, sending good money after bad.

My admiration stops short of sites that prey on the weak and the uneducated -- and of business plans that are almost certainly illegal, at least here in the US. As always, caveat emptor.

Okrane S. said...

The better question would be: why would a rational person even get into this type of game?

you must be a total idiot to place a bid in the first place...

But that is how the big bucks are made. Praying on the weak minds of the working class and their desire for uprising.

Poor simpletons, I say.

Well, I guess it's time to think up of new scams to use in RL... maybe I'll find a way to work much less and earn much more...

Anonymous said...

Comparing bidding wars to arena combat is a bit of a stretch. Arenas are a part of the game that some enjoy, and there is more than one "winner".

So what Gelvon is saying is that we shouldn't participate in anything that doesn't have a guaranteed outcome. I think most of his businesses would fail that test, as there is always some risk.

Of course, it's easy for Gelvon to compare anything he has no interest in to the dollar-auction.

Anonymous said...

there are 3 good fishing pole options in the game that don't involve chance. one of them is horde only quest, one requires exalted reputation with northrend faction, and one is a quest reward for a few minutes of killing eels in a lake near Shathrath.

Fishing competition will not slow down as long as people are chasing achievements and going for the title Salty. the Win (and the fishing pole) for them is a means to an end. It was a lack of foresight on your girlfriend's part to do the competition for the pole - even if she had no competition - it still takes longer then either of the quest rewards and the improvement is at most - marginal.

I'm still using my fishing pole from Seth in Shat and it works just fine with its +20 to fishing.

Eggalicious said...

I think this same sort of mentality is used by people with certain political affiliations. They become so vested in a certain party and it's candidates that they vote for them no matter how qualified the candidate or how illogical it is. This is especially true for people who continue to support and vote for liberal candidates. Despite their track record of spend and tax with more and more money being pumped into social programs, people continue to vote for them. It really is hard to understand.

Allen said...

@Eggalicous: Are you from Europe or something? Because in the US, both parties tax and spend like no tomorrow. It's really an odd thing to complain about unless you're going for a true goblinish anarcho-capitalist type system.

And if you are, enjoy your seasteading!

Bitwise said...

Gevlon: While I know you've expressed that you can make gold with any profession, what would you say are the two best professions (or combination of two, like Herbalism & Inscription) to provide a steady income?

Ranjurm said...

For a steady income past the initial investment cost, JC + Enchanting is pretty simple to pick up and run with and should provide better money/time spent on most server over gathering professions unless you are still questing (JC has little to no benefit while questing but enchanting provides a nice cash boost over vendoring) in which case a gathering profession will provide more income.

This is somewhat off topic to your post and blog focus but your girlfriend dismissing the fishing contest outright after one competition is a bit silly. There are a multitude of steps that can be taken for increasing your chances of winning a competition. You can have water walking elixirs, Speed potions, BB hearth stone, paladin escort for crusader aura, Warlock summon to the quest giver, Fish tracking and that's the easy stuff that doesn't take any practice. Additionally there are other aspects that can be improved through repetition: True edge of fishing pools, bobber landing area (not a simple radius), underpopulated fishing sites, over populated, fishing pool spawns. And that's not even taking into account the luck factor. It took me 3 serious tries to win the contest (some would say that didn't take long) and I suffered from poor luck on the first two compared to the winning run. On my first time I lost by two fish but I caught two rare fish during that time which would have given me the win should they had been normal tasty fish. ON the second loss I was hearthing when the winner was announced. Had I used the warlock summon method I would have won but I didn't feel like gathering up 3 other people and make them wait for me. The winning time I had few junk catches and little competition on the zone I was fishing in. I won by a large margin but I had preformed similarly to the previous two attempts. Anyways the point of this long rambling is that you chances of winning the contest without preparations are severely diminished.

Gevlon said...

@Okrane S: it's NOT always so visible that there is competition. If you believe that you are the only one bidding, it's smart to bid.

@Ranjurm: She just wanted a fishing pole, not winning a real competition. She went to the Kaulak-s and got their fishing pole after some quests.