Scandinavian auctions

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The desire of a modern person for material well-being sometimes takes on somewhat pretentious forms. The desire to save money on the purchase of expensive things, of course, is fully justified, unless such saving turns into an obsession and does not force a person to do things that he may later regret.

Attempts to save money where the other pays the full price are actively used by clever entrepreneurs who adhere to the principle "the end justifies the means." Balancing on the brink of what is permissible, approaching the edge of legislation, they offer gullible ordinary people various ways, tempting with the opportunity to quickly improve their financial affairs.

Our turbulent time offers many examples of this kind - these are all kinds of financial pyramids, disguised as "mutual funds", and "zero" interest rates on loans, which provide for significant hidden payments, and similar phenomena. In this article, we will consider a phenomenon, the excitement around which has not subsided for several years, involving its supporters and opponents in fierce disputes - the Scandinavian auction.

Are Scandinavians in the know?

This type of auction is called "Scandinavian" only formally - in fact, such a trading system has nothing to do with Scandinavia. In Western countries, this type of auction has a certain distribution, but the English name much more accurately reflects the essence of the bidding process - "Penny bid auction".

Strictly speaking, such auctions are also not an auction in the classical sense, since a regular auction has many differences from the Scandinavian one. These differences are so significant that the laws of some countries, for example, Italy, have classified the Scandinavian auction in the category of gambling. What are the features of the Scandinavian auction?

A regular auction, as a rule, does not limit the user in the amount of the bid. Remember how the unforgettable Ostap Bender, bargaining for a furniture set, waited for the last moment of the auction and made a stunning effect with his rate of 200 rubles?

Before that, the auction participants made bids in small increments - 3, 5, 10 rubles, but Comrade Bender, a subtle connoisseur of human nature, raised the bid from 130 at once to 200 rubles - and won the auction. Further developments, when the total amount of payments was not 200, but 230 rubles, which the unlucky partners did not have, we also take note of - 15% of the winning amount was made by the auction commission.

The Scandinavian auction is similar to the usual one only in terminology. The basic principles of trading in these trading systems are radically different. As sometimes happens at a regular auction, in Scandinavian the initial bid for a particular product is also set significantly lower than its market value, but there are significant differences in the bidding process.

Features of "Scandinavian" trading

Thus, the bid step at a Scandinavian auction is fixed and is very insignificant in comparison with the likely value of the goods. For example, for a lot, the cost of which on the market is 10-15 thousand rubles, the starting price can be set at only 100 rubles, while bidders have the opportunity to raise rates by only 25 kopecks! It is appropriate to recall here that the English name "Penny Bid Auction" was indicated above in this article, i.e. auction with a bid (incremental bid) in pennies, i.e. to the minimum amount.

It should be noted that the most important circumstance of the Scandinavian auction is that, making a bid of 25 kopecks, the participant must pay for it, and the fee for the bid is no less than 7 rubles. Thus, while gambling for a lot with other participants, having made, say, 20 bets of 25 kopecks each, in fact, the participant, even without winning the lot, ends up spending 20 * 7 = 140 rubles just for the opportunity to make these bets. The profit of a Scandinavian auction is not a percentage of the winning amount (remember 15% at Ostap Bender's auction?), But this fee per bid!

Another important difference between the Scandinavian auction and the usual one is that there is no fixed trading period in the former. After a certain time, each bet made by the user slightly extends the trading period, for a period from several seconds to several minutes. And, if during this time no one else makes a new bet, the one who made the last one is considered the winner.

Well, rules are rules, a person to whom they do not fit may simply not take part in what seems dubious to him. Scandinavian auctions have numerous supporters and opponents. Opponents consider such auctions to be fraudulent, and their organizers - scammers. Let's consider the reasons for this ambiguous attitude.

Scientists are to blame for everything?

In order to make the further presentation more understandable, it is not a bad idea to make a short excursion into the history of the emergence of Scandinavian auctions, since it is only a few decades old. It all started with an amusing experiment put in 1971 by Martin Schubik, professor at the Institute of Mathematical Economics at Yale University.

This amazing experiment is designed to demonstrate how easily people, its participants, become prisoners of the so-called "behavioral trap". A behavioral trap is a paradoxical situation (the Max Bazerman phenomenon) in which participants are eventually forced to commit irrational actions after they have made several quite reasonable and logical decisions.

So, Professor Shubik's game was as follows - he wanted to sell one dollar to someone from the group of participants. The rules were as follows - participants should not agree among themselves; the starting rate is one minor amount, say 10 cents, and the increment is 5 cents. An arbitrary number of people can take part in the auction, but at the time of the end of the auction only two people make their bids, and at the moment of winning they will have the maximum.

An auction built according to such rules turns out to be profitable even when the two highest bids reach 50 and 55 cents - a lot of one dollar will be sold for a dollar and 5 cents. However, the participants are still determined to fight for victory and continue to place their bets, raising the bar ever higher. A curiosity of the situation arises at the moment when one participant brings his rate to one dollar, and the other to 95 cents.

If the game stops right now, then the first participant will not win anything and will not lose, but the second will lose his 95 cents! And this second participant at such a moment makes an obvious, seemingly, decision - to continue the game. He raises the bid to one dollar five cents.

At this stage, the meaning of the game changes - the struggle begins not for a greater gain, but for a smaller loss. If the game stops at this stage, the second participant will lose only 5 cents, and the first - a whole dollar. The first player does not like this, and he, in turn, also raises the bet - now it is $ 1 10 cents. This is called a behavioral trap - if the game stops, any of the players will be at a greater or lesser loss, but they continue to raise the rate, only exacerbating the situation ...

Mathematicians, psychologists and sociologists, on the basis of Professor Shubik's experiment, have written many scientific papers and dissertations. However, enterprising Internet businessmen took the main thing from this idea - the creation of a behavioral trap, and developed various software systems, on the basis of which many sites of the so-called Scandinavian auctions operate in the American, European and Russian segments of the World Wide Web.

If ordinary auctions have been successfully functioning in the real world for many centuries, only later moving to the Internet, then the Scandinavian, or Penny Bid auctions, appeared on the network from the very beginning. Often, the user is forced to simply trust the statements of the auction organizers and site administrators, since the mechanism for participating in the auction is not transparent. Having been flattered by a tempting opportunity to profitably purchase a valuable thing, the user, performing logical actions at the level of the initial trades, very soon falls into a behavioral trap.

He discovers that, by abandoning further struggle for the lot, he loses a rather significant amount; however, he hopes that, perhaps, his competitors will soon "fizzle out" and the victory will go to him. However, his competitors also think in much the same way. At some point, the struggle for a profitable purchase develops into a struggle for the smallest losses, and the rate and costs of the opportunity to make it continue to grow indefinitely ...

When does the secret remain secret?

Another questionable feature of Scandinavian auctions is the ability of administrators to use virtual users, or bots, instead of real people. To clarify where such doubts arise, let us consider one more conditional situation.

Suppose there is only one Scandinavian auction site in the entire world. Tens of thousands of people visit it every day, trades are made, someone rejoices at a successful acquisition, someone is upset about losses - in general, everything is as it should be. However, what happens if someone opens a similar auction on another site? Say, will he buy goods, fill the warehouse and start trading?

Right! Since few people know about the new site, only a few people will take part in the auction on it. This means that there is a great danger for organizers that the winning bid on valuable lots will be so low that the auction will suffer significant losses.

What should the organizers do in such a situation? One way is to change the rules of the auction taking into account the initial stage of the auction. For example, to increase the initial bid on lots, to increase the trading time, in general, to reduce the attractiveness of the auction for the already few users. The second way, which many auction enthusiasts gossip about, is to introduce virtual users, or software bots, into the system.

Bots, acting under the guise of ordinary users, raise the rate in time, forcing the real player to play for a raise from their side. The suspicion of using bots increases when you realize that this kind of scam is very beneficial for dishonest auction organizers - and the goods remain in the warehouse (if any), and the profit from the bets of the losing players goes to the account.

Now, when the sites of the World Wide Web are full of advertisements for Scandinavian auctions, not only potential players, but also potential investors are thinking about taking part in the auction. When there is not one, but a hundred active auctions in the network, what can the one hundred and first expect, especially at the beginning of its activity? In the struggle for users, sometimes they do not shun any means ...

Knowledge is power!

The purpose of this article is not to blatantly accuse all of the organizers of Scandinavian auctions of fraud. We only revealed some of the features of their conduct and organization, pointed out the dubious, from our point of view, moments and called on to think about them. After all, as the prominent French writers Goncourt brothers wrote: "The measure of a man's mind is his ability to doubt, and the measure of his stupidity is credulity."

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