eBay

In the past I have been persuaded to buy items on eBay that I really don’t want or need. There are a number of factors that aim to persuade us to bid or buy on eBay. Time pressure is a big factor. When items are listed in terms of ‘Time: ending soonest’ you know how many minutes left you have to bid or buy an item. In the past I have bought items that have had a couple of minutes until the end of the auction purely because I don’t want to miss out and then regret it. ‘What if this is the only item in this size/colour/price, I’ll regret it if I don’t place a bid ’. One explanation is ‘loss aversion’ first coined by Kahneman and Tversky (1979). This is the tendency for individuals to strongly prefer avoiding losses rather than acquiring gains. We make these quick decisions without thinking them through. I was talking to a friend about a pair of shoes she was looking to place a bid on and she said ‘I probably won’t wear them much but look…they’re SO cheap I can’t not place a bid’. The fact that there was less than an hour to go before the end of the auction further persuaded her.

Two concepts discussed by Cialdini (2007) are at work here. Firstly, once you have placed a bid on an item, you have made a psychological commitment. Secondly,unless you set a maximum price you are willing to pay and stick to it, it is likely that if outbid you will re-bid just to be consistent with your original decision. Once you know that you are bidding against someone else or several others you want to win the item even more (despite the fact that you may not actually want the item that much). 

The 99 pence/cents effect is also commonly used for starting bid and postage prices on eBay. A field study by Schindler (1989) compared sales of the same catalogue using three different pricing formats. Thirty thousand customers received one of three pricing formats for all items in the catalogue. These were round number prices, those that ended in .99 and those that ended in .88. They found that sales for the .99 format catalogue were 10% higher after three months and .88 prices did not increase sales any more than round numbers despite all being 12 cents cheaper.

Cialdini, R. B. (2007). Influence: The psychology of persuasion. New York: Collins.

Kahneman, D. & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263-291

Schindler, R. M. (1989). A field test of the effects of price ending on sales. Working paper,  School of Business, Rutgers University - Camden, Camden, NJ.