You’re at an auction and you believe you’ve got it nailed. You’ve practiced that cool, raise your finger with arms folded look. Your emotions are in check and there is no way that you will overbid. You know the budget and you’re sticking to it.
That is unless you suffer from the endowment effect, the psychological quality that behavioural scientists have identified as our need to pursue or protect our possessions. The endowment effect leads us to endow more value to our possessions than they actually have.
At property auctions it is this trait that causes us to overvalue the need to own and makes us determined to win at the sale even to our detriment when we bid over our budget.
Another psychological aspect that comes into play at auctions is social facilitation which is an inclination to act differently when we’re with others and a tendency to compete against or copy the actions of others. This leads to what is commonly termed auction fever.
Only by understanding the psychology of auctions can you ensure that you can come out tops without overbidding.
Stop the Rhythm
If you’ve ever been to an auction run by a master auctioneer, you’ve probably been fascinated by the way he or she is able to play the buyers, driving a sense of urgency and excitement. A good auctioneer determines and controls the rhythm of the auction with his body language and verbal prowess.
The auctioneer uses the rhythm of the auction to activate the endowment effect and get the emotions going so that the buyers bid not for the property but for the win.
Knowing the true value of the property you’re bidding on is key to keeping a cool head. When you know the value, you are less likely to get emotional so you’ll stick to the top price that you have set.
Use the rhythm to your benefit as a bidder. You can use it stop the auctioneer from controlling the flow, to frighten latecomers off or to force the early departure of the first bidders. Once the auctioneer realizes that you’re a strong player, it may negatively impact on their ability to perform as well as they would like.
Invert the expectations
There are several ways to upset the expectations at an auction. The expectation is the that the auction will start with slow, intermittent bids which will then move on to smaller, quicker bids. Until, at last, the auctioneer announces the winning bid.
You can use this knowledge to your benefit and upset these expectations. Evaluate how much interest there is in the property. If there is a lot of obvious interest, you could use high bids at the beginning of the auction to discourage these bidders so that the stop bidding early on and signal your interest as the prime bidder.
Very often increasing bids are made in whole numbers. Try offering a bid that will have the auctioneer summing up values in his head. This may interrupt the flow.
Showing confidence
Auctions tend to be relatively quiet affairs. Those who are merely watching and have no intention of buying usually sit silently. This is especially so when any sound could be taken as a bid. This allows the auctioneer to take the lead. He is typically the only person at the auction who will say anything. Bidders raise their fingers when they want to signal an increase. The vendor says nothing.
Change this up and speak as loudly as the auctioneer. They regularly practice that voice and they don’t expect a bidder to use the same volume. Ensure that your bids are made known in a loud and confident voice. Throw his rhythm off by tossing in odd number. Don’t be rude in anyway nor block his ability to perform his job. Just make sure that you are clearly visible and heard.
