Cross-posted at Montclair SocioBlog.

I don’t know the sociological research on auctions — surely it must exist — but auctions seem like a wonderful illustration of how value is socially constructed. I didn’t really need to be convinced that people don’t always live up to economists’ ideals of rationality, but I was reminded of it on Saturday when I watched the auction of items from my mother’s “estate” (i.e., stuff in her apartment). I wasn’t in the actual auctiion room; nowadays you can watch — and bid — online.

As someone who is relatively ignorant about art, I of course was puzzled as to why one piece was worth several hundred dollars while another might fetch only a $50 or no bids at all. But I thought that potential buyers would have an idea of how much something is worth — the objects and information about them are all available beforehand — and they would bid and stop bidding according to these prior valuations. But look at this lithograph, which graced my parents’ wall for as long as I can remember.

The opening asking price was $20.* None of the people at the auction house or online would offer that much. For the potential bidders, the picture was not worth $20.

The auctioneer then lowered the opening bid to $10. Someone offered the ten bucks. A bargain. But then someone else bid $20. The picture which had not been worth $20 suddenly was. And then it was worth $30. You can see the bidding history to the right of the lithograph. The bidders were reluctant — twice someone came in just as the gavel was about to come down — but in the end, the picture that nobody thought was worth $20 eventually sold for twice that much. In the interval of a few minutes, this minimal interaction between bidders had quadrupled the value of the picture.

There’s also a cognitive-dissonance explanation. If I bid $10 for the item, I’m not just telling myself, “I think this picture is worth $10.” Instead, the message is more general: “I want this picture.” Once we decide to buy something, our subjective valuation of it goes up – we’re more comfortable thinking that we got a good deal than thinking that we wasted our money. Most transactions end there; we buy something at a price, and we are happy with it. But an auction encourages us to turn that subjective valuation into hiigher and higher cash bids.


* It can be a bit daunting, depressing even, to think that a picture so familiar that it feels like a part of your life turns out to be worth so little to other people.