This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via Google Scholar Google Scholar Articles by Simonsohn, U. Articles by Ariely, D. Search for Related Content

When Rational Sellers Face Nonrational Buyers: Evidence from Herding on eBay

Rady School of Management, University of California, San Diego, La Jolla, California 92093
The Fuqua School of Business, Duke University, Durham, North Carolina 27708
usimonsohn{at}ucsd.edu
dandan{at}duke.edu

People often observe others' decisions before deciding themselves. Using eBay data for DVD auctions we explore the consequences of neglecting nonsalient information when making such inferences. We show that bidders herd into auctions with more existing bids, even if these are a signal of no-longer-available lower starting prices rather than of higher quality. Bidders bidding a given dollar amount are less likely to win low starting price auctions, and pay more for them when they do win. Experienced bidders are less likely to bid on low starting price auctions. Remarkably, the seller side of the market is in equilibrium, because expected revenues are nearly identical for high and low starting prices.

Key Words: herding; auctions; biases; rationality; industrial organization
History: Received: February 8, 2007;