Psychology of Auction:Social Proof!

Posted on 30 JAN

Psychology of Auction: Social Proof!

We are often asked about how auctions work, and what makes a good auction so thought we would share the following article that we wrote for another publication:

Have you ever wondered about the psychology of auctions? Have you heard of “social proof? If you understand it you can use it to your advantage.

If you attend any auction across Auckland there’s a good chance you’ll see the following scenario play out –

Auctioneer: “Who wants to open the bidding?”

Crowd: silence

Auctioneer: “Who wants to start it off!”

Crowd: silence

Auctioneer: “Surely you haven’t all come just to see me!”

Finally someone calls out a bid, or the auctioneer makes a vendor bid, and all of a sudden there’s a flurry of hands in the air.

Auctions are a great example of ‘social proof’ – a psychological phenomenon where other people’s actions reinforce one’s own decisions. Imagine you’re heading out for breakfast and there’s two café’s side by side – one is empty, and the one next door is full. You are more likely to choose the busy one, because the assumption is made that something must be wrong with the empty cafe. It’s the same at an auction – if nobody is bidding, it can sometimes (often subconsciously) make people question their own judgement. As soon as someone else has put their hand up, it provides validation that no: there’s nothing wrong with the property, and yes: other people do see value at that price thereby triggering the other potential buyers in the crowd to join in.

Social proof can go both ways. If there’s active bidding it can signal to others that the property must be desirable and it’s worth fighting for, often encouraging people to stretch beyond their original budget. But if there’s no bidding, it can sometimes result in a property being passed in, even though there are people in the crowd who have every intention of buying it. Without the social proof of competition they freeze up, second guess themselves and begin to have doubts. We’ve seen many properties pass in on a vendors bid, only to have multiple parties then go inside to negotiate against each other.

The moral of the story is don’t let other people’s lack of interest in a property put you off. If you like the property, you can afford it and you’ve done your due diligence, then go ahead and buy it!

Questions? We have lots of information on our website at www.thestones.co.nz/property-tips