Scandinavian auctions

The aspiration of the modern person to material well-being sometimes takes on somewhat elaborate forms. The desire to save on buying expensive things is, of course, justified, unless such an economy turns into an obsession and makes a person commit acts, which he may later regret.

Attempts to save where the other pays the full price, are actively used by smart entrepreneurs who profess the principle “the end justifies the means.” Balancing on the verge of the permitted, approaching the edge of the law, they offer gullible people in a variety of ways, tempting the opportunity to quickly fix their financial affairs.

Scandinavian auctions

Our turbulent time offers a lot of examples of this kind – it’s all sorts of financial pyramids, veiled under the “mutual funds”, and “zero” rates for loans, which provide significant hidden payments, and similar phenomena. In this article we will consider the phenomenon, the fuss around which has not ceased for several years, involving in the furious arguments of his supporters and opponents – the Scandinavian auction.

Are there any Scandinavians in the course?

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

Properly speaking, auction in the classical sense of such trades are also not, because the usual auction has a lot of differences from the Scandinavian. These differences are so significant that the legislation of some countries, for example, Italy, listed the Scandinavian auction in the category of gambling. What are the features of the Scandinavian auction?

A typical auction, as a rule, does not limit the user in the amount of the bet being made. Remember how the unforgettable Ostap Bender, bargaining for the furniture set, waited for the last moment of bidding and made a stunning effect with his bet of 200 rubles? Before that, the auction participants were betting with a small increment of 3, 5, 10 rubles, but Comrade Bender, a subtle connoisseur of human nature, raised the rate from 130 at once to 200 rubles – and won the auction. The further development of events, when the total amount of payments was not 200, but 230 rubles, which were not for the hapless companions, also take note – 15% of the winning amount was an auction commission.

The Scandinavian auction is similar to the usual terminology. The basic principles of bidding in these bidding systems are radically different. As it sometimes happens in a regular auction, the Scandinavian initial rate for a particular product is also set much lower than its market value, but significant differences are made in the bidding process.

Features of the “Scandinavian” bidding.

So, the rate step in the Scandinavian auction is fixed and is very small in comparison with the probable 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 just 100 rubles, while bidders have the opportunity to raise rates by only 25 kopecks! Here it is appropriate to recall that above in this article the English name “Penny Bid Auction” was designated, i.e. An auction with bid (increment increment rates) in pennies, i.e. in the minimum value.

It should be noted that the most important circumstance of the Scandinavian auction is that, when making a bet of 25 cents, the participant must pay it, and the fee for the bet is not less than 7 rubles. Thus, while gambling for the lot with other participants, making, say, 20 rates of 25 kopecks, in fact, the participant, even without winning the lot, ultimately spends 20 * 7 = 140 rubles only for the opportunity to make these bets.The profit of the Scandinavian auction is not a percentage of the winning amount (remember 15% at the auction of Ostap Bender?), Namely this fee for the bid!

Another important difference between the Scandinavian auction and the usual one is that in the first there is no fixed period of trading. After a certain time, each user’s bet slightly prolongs the trading period, for a period of 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 doubtful to him. Scandinavian auctions have numerous supporters and opponents. Opponents consider such auctions auctions as frauds, and their organizers as scammers. Consider the reasons for this ambiguous relationship.

Scientists are to blame for everything?

In order to make the further presentation more understandable, it’s a good idea to make a brief excursion into the history of the Scandinavian auctions, since it only counts a few decades. It all started with an amusing experiment, which in 1971 was put by the professor of the Institute of Mathematical Economics at Yale University Martin Shubik.

Scandinavian auctions

This amazing experiment is designed to demonstrate how easily people, its participants, turn out to be prisoners of the so-called “behavioral trap”. The behavioral trap is a paradoxical situation (the phenomenon of Max Bazerman), in which participants are forced to commit irrational actions after they have made some quite reasonable and logical decisions.

So, the game of Professor Shubik was the following: he wanted to sell one dollar to someone from the group of participants. The rules were as follows: the participants should not agree with each other; the initial rate is one insignificant amount, say, 10 cents, and the increment increment is 5 cents. To participate in the auction can be an arbitrary number of people, but at the time of the end of the auction, only two bet out their bets, who will have the maximum at the moment of winning.

An auction built according to these rules turns out to be in profit already when the two highest rates reach 50 and 55 cents – a lot in one dollar will be sold for a dollar and 5 cents. However, the participants are still full of determination to fight for the victory, and continue to bet, raising the bar higher and higher. The curiosity of the situation arises at the moment when one participant brings his bet to one dollar, and the other – to 95 cents.

If the game stops right now, the first player will not win anything and will not lose, but the second will lose 95 cents! And this second participant at such a moment takes an obvious, like, decision – to continue the game. He raises the rate to one dollar five cents.

At this stage, the meaning of the game changes – the fight starts not for a greater gain, but for less loss. If the game ends 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 rate – now it is 1 dollar 10 cents. This is called a behavior trap – if the game stops, any of the players will be in a greater or lesser loss, but they continue to raise the rate, only aggravating the situation …

Mathematics, psychologists and sociologists, based on the experiment of Professor Shubik, wrote many scientific works and dissertations . However, enterprising businessmen from the Internet took from this idea the main thing – the creation of a behavioral trap, and developed various software systems on the basis of which in the American, European and Russian segments of the World Wide Web there are many sites of so-called Scandinavian auctions.

Scandinavian auctions

If ordinary auctions successfully function in the real world for many centuries, only later moving to the Internet, Scandinavian, or Penny Bid auctions, originated in the network initially.Often, the user is forced to simply trust the statements of the auction organizers and site administrators, since the mechanism of participation in the auction is not transparent. Having gained a tempting opportunity to profitably acquire a valuable thing, the user, making logical actions at the level of initial trades, very soon falls into a behavioral trap.

He discovers that, after abandoning further struggle for the lot, he loses a considerable amount; while he hopes that, perhaps, his competitors will soon “fizzle out” and win it will be him. However, its competitors also think about the same way. At some point, the struggle for a profitable purchase grows into a struggle for the least losses, and the rate and the cost of the opportunity to do it continue to increase indefinitely …

When the secret remains secret?

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

Suppose that there is only one Scandinavian auction site on the whole globe. Tens of thousands of people come to it daily, trades are made, someone is happy with a successful acquisition, someone is upset by losses – in general, everything, as it should be. However, what happens if someone opens a similar auction on another site? Say, will it buy the goods, fill the warehouse and start bidding?

That’s right! As few people know about the new site, only a few people will take part in it. And this means that for organizers there is a great danger that the winning bet on valuable lots will be so low that the auction will suffer significant losses.

What should the organizers do in this situation? One way is to change the bidding rules taking into account the initial stage of the auction. Say, raise the initial bet on lots, increase the trading time, in general – reduce the attractiveness of the auction for already few users. The second way, which many marketers enthusiasts say, is the introduction of virtual users, or software bots, into the system.

Bots, acting in the guise of ordinary users, raise their interest in time, forcing the real player to play for promotion on his part. Suspicion in the use of bots is strengthened when you realize that this kind of scam is very beneficial to the organizers of the auction, which is unclean in the hands – and the goods remain in the warehouse (if any), and the profit from the losing players’ rates goes to the account.

Scandinavian auctions

Now that the websites of the World Wide Web are full of advertising for Scandinavian auctions, not only potential players, but also potential investors are thinking about taking part in the auction. When there is more than one in the network, but a hundred active auctions, what to expect the first hundred, especially at the beginning of its activities? In the struggle for users sometimes do not despise any means …

Knowledge is power!

The purpose of this article is not an unbridled accusation of all organizers of Scandinavian auctions in scam without exception. We have only revealed some of the features of their conduct and organization, pointed out the dubious moments, from our point of view, and called upon them to think about it. After all, as the famous French writers wrote Goncourt’s brothers: “The measure of a man’s mind is his ability to doubt, and the measure of his stupidity is credulity.”

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