pt

Couldn't believe there is no group for fans of the prospect theory, so I set one up myself...

http://www.facebook.com/group.php?gid=107322012632255&ref=ts

Swoopo

This time, I would like to consider one’s chance to win on a swoopo-type web-based auction. Since these websites have attracted millions of users, many began to wonder whether there is a way to enhance the chance to be the final-winning bidder. Accordingly, many websites offer valuable hints and strategy guides, which create an illusion that swoopo is a game of skill.

In case if someone doesn’t know what swoopo is, you can refer to:

http://en.wikipedia.org/wiki/Swoopo

,for a definition.

After searching the web, I found that there are no strategy packs available for free (not very surprising). Since I personally believe that this type of auctioning rests purely on chance, I wasn’t able to come up with any great tactics myself. I found however, few enthusiasts (employees?) of swoopo who tend to stress several important skills that are needed to win a desired item.

1.

Firstly, people tend to compare swoopo to ebay, pointing out that a common way of winning is to bid in the very last seconds of the auction. There are, however, certain significant problems that make this technique less attractive in case of swoopo. Accordingly:

- Since you pay for your bids, there is a high likelihood that you will lose and walk away with less than you originally had.

- Everyone knows that sniping is the only way one should play, hence everyone does it, diminishing your chances to win even more.

- People use software to bid in the last moment, which cancels out any involvement of skills from the game.

2.

In fact, most strategies oscillate around the idea of sniping, stressing the importance of patience, analysis of previous winning prices, or taking the time of the day into an account. Naturally, all of these great ideas are useless, yet some can be even very dangerous. Many players are encouraged to resist the temptations and to place their bids carefully. This, however, introduces a false impression of control into the game.

Let us analyze a sample winning auction:

The £ 40.00 worth Battlefield - Bad Company 2 (PS3) , has been won by a lucky person who had to pay only £4.80 for this item (+£2.90 delievery = £7.70). This means that someone saved £32.00! However, the winning player had used up 52 bids in order to win, which cost him £26.00. All together, the person saved only around £6.20. Obviously this may appear as a decent deal, but it shouldn’t really.

The reason why people are attracted by these scenarios is because they look at the winning bidder only. In fact, the same logic applies to the lottery, where the winning of millions can be achieved with a singly £1 worth ticket. In order to have a clear idea of what we are putting ourselves into, we have to consider how much we can lose. Not surprisingly, the swoopo website omits the relevant information, but some of them could be calculated. Thus, if the winning price was £4.80, and one credit increased the price by 1 penny (!), there must have been total 480 bids (worth £240.00 as 50p equals one credit).

This simply means that all the contributors made the company earn £200.00 on a £40.00 worth video game. Although it is impossible to calculate the probability of winning from the information given at the website, it seems clear that the competition was extremely high, yet it resulted only in £6.00 worth of savings. Whereas it is often the case that savings are very high (someone “saved” £600.00 on a LCD TV) the chances are that you will end up paying for someone else’s prize. If items gather so many bidders, what are the chances that your bids will win? In the example above, £26 worth of credits were needed to win a game for which a person had to pay additional £7. While the auction ended at 2 am, till the last moment there were at least 7 different bidders actively wasting their money. Furthermore, the winning bidder was not consistently the highest bidder during the final minute, which clearly indicates that he/she was extremely lucky.

From these considerations only, swoopo appears very unattractive to me. Although I would love to analyze a detailed bidding history, I am very confident that it would not reveal any pattern that could be used to devise a winning strategy.

More nudges

Nudge blog just published one of the decision making nudges that I observed and sent to them.

You can find the post on:

http://nudges.wordpress.com/2010/02/12/assorted-links-24/

Nudge blog

Authors of the "Nudge", Thaler and Sunstein, set up a blog on which they present new and fascinating incentives, many of which are sent by email by its readers. I actually sent them one myself, but it turns out that it was previously published. Anyway, here I post my nudge to make people stop littering with their chewing gum, which was employed at the Norwich bus station.

For more neat ideas of incentives that make us better decision makers you can visit:

http://nudges.wordpress.com/

10 Big Studies of 2009

Cool stuff, thanks for the link Matt.

http://trueslant.com/daviddisalvo/2009/12/28/ten-psychology-studies-from-2009-worth-knowing-about/

Financial Crisis

I found it on the internet today. It is an amazing flash video explaining all main the reasons behind the economical crisis that started in 2008. Great explanations for the complex financial interactions that led to the collapse of worldwide economy.

enjoy:

http://cashmoneylife.com/2008/09/29/economic-financial-crisis-2008-causes/

Nudges

Just a brief post:

In recent news, attention was brought to the changes in the way people manage their money as a result of the shaky economy. Surveys suggest that the average proportion of the household income put aside as savings remained relatively constant in last four years. At the same time there seems to be a strengthening trend to pay off credit card debts and loans.

In purely economical terms, this situation can be difficult to explain. The choice to spend more on paying off a mortgage, for instance, should appear as less attractive than simply saving money, from a rational standpoint. The idea to pay off the debt is an “investment” with no fluidity, in contrast with saving account from which the money can be withdrawn if there is a need to do so. At the same time, speeding up on paying your loan increases the already existing transaction costs, whereas saving accounts don’t require regular payments (unless we are talking about a saving scheme/fund). Strictly speaking, saving up money, at first glance, appears to be the most appealing and safest route given how uncertain the economical future is.

However, a possible explanation for the current situation could be extracted from the book “Nudge” written by two extraordinary psychologists/economists; Richard Thaler and Cass Sunstein. Two authors elaborate on the subject of temptation and possible strategies that people can adopt as a condition to avoid unnecessary spending. Some techniques can be internal (like mental accounting) and involve our personal determination in managing our finances. Very often, however, people tend to use external devices such as saving schemas or pension programs. Many of these methods are in fact self imposed limitations and rules that make us stick to our long term plans. In fact, people do this all the time, as if they anticipated their poor and unstable judgment! Sometimes, we are aware of our weaknesses and would like to take precautions so that we don’t get in trouble later on. A great example of this phenomenon is the new initiative run in Nevada, USA. Knowing how many people have a gambling problem, a new registry of banned from casinos individuals has been formed. The key element is that people are allowed to put themselves on this list, if they feel that they have a gambling addiction. Amazingly, loads of people take an advantage of this system!

Going back to the British economy, self regulation could explain why people prefer to pay off their debts, rather than saving up for the unexpected. Accordingly, it appears that because of the unclear economic situation, people need to refrain from unnecessary spending. As we know, money can be withdrawn freely from a bank account so people may be tempted to use it on, let’s say, Christmas presents. However, lowering the amount we own is a sensitive strategy to locate our money, if one thinks about the future. Many loans, like mortgages, don’t have a fixed interest rate so they can be affected by the economical situations. Therefore, people don’t want to be in debt, and don’t want to waste money if they feel a strong urge to do so. Conclusively, increasing our mortgage repayment could be regarded a self controlling external device.

In my opinion, this seems to be plausible explanation for the current state of affairs.