Auctions, Social Proof and Outright Panic

Auctions for rare coins in 2024 are vastly different to what they were just 5 to 10 years ago. 

Until recently, dealers and collectors would invariably travel to wherever an auction was held, they'd personally inspect the items they had an interest in and would bid on any items that passed muster. 

Although there were some "mail" bids lodged before an auction kicked off, most bidders would be physically in the room at the time bidding got underway. When it came to our opposition, we'd have the opportunity to "see the colour of their eyes" which made it relatively easy to get a read on the market.

I don't think I'm wrong when I say that most auctions these days are conducted online - physical inspections are a lot less prevalent than they used to be and competing bidders are represented by icons and numbers on a screen. Sight and sound play a much smaller role in shaping attention and the auction atmosphere can feel remote and distant.

Relatable Self Doubt

Now if I'm at a party and tell someone that I deal in rare coins for a living, they'll often have no idea what that looks like on any day of the week. But if I tell them a story about a time when I had an attack of self-doubt after I bid on an item in an auction, they relate to my moments of panic, alarm and anxiety pretty quickly.

Most folks think auctions are a fairly logical and orderly way of finding new owners for items that are available for sale, but my experience has shown me that isn't always the case.

Some auctions can be held in a drab venue, can be run by nigh disinterested staff and be attended by emotionless or "professional" bidders. Other auctions can be held in a venue that heightens the senses, where the staff and bidders in the room subtly and seemingly without effort contribute to an atmosphere of excitement and anticipation that heavily influences a bidder's behaviour.

Once bidding on an item opens, if my competitive spirit is doused with an irrational fear of missing out, the bidding process can get underway pretty dang quickly. It can be difficult to resist getting swept up by the momentum an auction generates, but resist I often must. As much as I might hate to have opposing bids on an item I'm interested in, there's a certain level of social proof demonstrated when others bid on an item, even if or especially when they're bidding against me!

The Winner's Curse

If that social proof validates an uncertain level of interest in an item and isn't restrained by a bid limit, I can end up suffering what's called "The Winner's Curse" - success in winning an item solely by paying too much.

For better or worse, I'm a belt and braces kind of guy - I've long lived with a finite budget heading into any particular auction (by that I mean finite), so I've developed an approach that's far from fast and loose. 

My preparation begins by doing as much research as I can on an item well before the auction takes place - I develop a clear idea of just how important an item is, how rare it is, how popular it is and how much interest there's likely to be in it in future. 

Having the Courage of My Convictions

When I'm heading into an uncertain and competitive environment, I find it's important to have the courage of my convictions - detailed research is what grants me that conviction and that courage.

With that research under my belt, I'm in an informed position to determine what I believe is a fair market value and can work back from that to develop a bid.

Once the bidding is underway, I'm fairly settled on what my plan and limit is. If an item goes past what I'm prepared to pay, I'm OK with letting it go and generally remind myself of the grossly exaggerated maxim that "the deal of a lifetime comes along once a week."

My question for you though is - how do you think I react when others don't bid and mine is the only card that's raised?

What If Mine is the Only Card That's Raised?

THIS is where a lack of social proof can lead to anxiety, uncertainty and even panic.

Here's just one example I can remember - I viewed the banknotes in one major Sydney auction from top to bottom - the early session had inexpensive cheap lots in it, and the evening session had sophisticated and valuable lots.

One of the early lots had a 1927 ten-shilling note in it that had been described as Very Fine. Generally, that grade describes a note that has a reasonable number of folds throughout the body. When I looked at this note though, I couldn't see anything wrong with it at all! I had to check the serial number on the note against the serial number listed in the description to make sure someone hadn't swapped it out, sure enough, they were the same. I then had to confirm it hadn't been pressed and washed to make it look far better than it was (lipstick can be applied liberally to a pig you see), but there was no evidence of that either.

I attributed this disparity to yet another "open secret" - an auction lot that is intentionally misdescribed by an auctioneer and picked up by all of those informed bidders who identify it as being vastly underpriced and who drive it up to fair market value regardless.

Just to ensure I wasn't somehow bamboozling myself, I checked the note again in the cool light of the next day. Sure enough, there were still no folds visible and it was just as potentially valuable as I first estimated it. To put it in context, at that time a Very Fine note was probably worth around $750, while an Uncirculated note brought around $17,500. (The exact numbers might not be right but the ratios will be).

The afternoon session unfolded without fanfare - some my fellow bidders were tracking each lot in their catalogue; others were doing a crossword or looking out the window while they waited for their next lot of interest. It all seemed to be rather benign and pedestrian! My pulse quickened as the lot drew closer, and I was amping by the time the lot came up. Not so much due to the dollars involved, but more because of the pressing uncertainty.

The auctioneer called the lot number and waited for an opening bid. None were forthcoming so he came back a few hundred dollars to see if there was interest in it at a price - I put my card up when I thought he'd come back as far as he was going to, and waited for the mayhem to unfold. I was shocked to see nothing but crossword puzzling, window gazing and doodling from my fellow attendees! More than a decade after the fact I don't recall what the exact hammer price was, but it was much closer to $750 than it was to $17,500.

Spectacular Self-Delusion

Which of course led me to conclude I'd somehow spectacularly deluded myself into thinking the note was better than it was. If it was so good, surely everyone else would have seen it and tried to grab it for themselves? I'm keenly aware of the limits of my intellectual capacity, so I wanted nothing more than to immediately interrogate my fellow banknote bidders: "Didn't you see that note? What sorcery are you lot up to?!" 

Such an outburst would of course be a major social faux pas -  the auctioneer wouldn't take too kindly to the flow of the sale being interrupted and the others in the room wouldn't want their focus being taken by someone panicking simply because they weren't clear in their mind.

I had to suppress my anxiety to wait for the next opportunity to view the note again, to verify whether I was a prize idiot or whether a mix of experience, preparation and opportunity had combined to yield a truly great outcome. When I collected my lots at the end of the sale, I checked it again and in a rare example of the planets aligning in my favour, it was just as good as I first believed it to be.

We ended up selling it to a collector who knew his notes - he had no issues at all with the Uncirculated grade and had no hesitation in including it with the other premium notes in his collection.

Competing Bids Aren't A Reliable Form of Social Proof

So what did I take away from that experience? Basically, competing bids aren't a reliable guide to the validity of my own plans, perceptions or judgements. Make no mistake though, this isnt a lesson I needed to learn just once and I've been infallible since then. I've suffered the same anxiety, uncertainty and even panic numerous times since then, but those episodes have been less frequent and have been shorter than they were before that auction went down.

I have to also go on the record as confessing there have definitely been times when I HAVE made an error in my judgement of an item's quality or value - I certainly don't have a perfect record. Thankfully, my own goals like that have been far and few between.

I place a great deal of value in preparing for a bid thoroughly and also in setting a strict bid limit -  I don't wait for the bidding to unfold before I decide how I'm going to approach a lot. I do my best to remain emotionally and intellectually balanced while a sale is going on, to remain centred in the face of the stress and excitement of assets and dollars changing hands at a furious pace.

There's enough competition in an auction room as it is without having to compete against my fleeting feelings and doubts!

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Comments (2)

James C

By: on 5 May 2024
Great auction story!

Sterling and Currency Response
That is just one of the many varied human experiences this human has had at auctions over the years James, I'll have to keep my antenna raised to remember similar examples of humanity when I'm next with a paddle in my hand.

market emotions and selling yourself short

By: on 5 May 2024
Enlightening post Andrew, but you are selling yourself short. Going through lots by individual pieces is a time consuming process of patience, determination and a drive for excellence. On top of that, a broad knowledge of various numismatic products creates the arbitrage opportunity that dealers in all markets would like to have. Not many will combine those qualities to have that edge. I've suffered losses and "winner's curse" many times and need not regale such painful lessons. The example that showed me the possibilities was acquiring a 1918I half sovereign, spurned at auction and picked up in a coin fair for a few thousand dollars. It graded MS64. I won't bother with the details, but my focus is very narrow and contained to metal. Needless to say, I'll be monitoring your interests at future auctions ;) Finally, the experience of purchasing remotely online from Darwin proved too much hit and miss. The eye has been trained to determine a coin, but the online auction photography is not following at the necessary pace for a completely remote bidding experience to be successful. That's probably where I need to get a greater fix on the emotions and simply say "pass" on product I cannot be rock solid in determining. Enjoyed your thoughts, Les.

Sterling and Currency Response
Thanks for your feedback Les. I recounted that story as a response to a client having the same reaction the night before on a very substantial purchase - I wanted to point out that it is a very human reaction. I know what you mean about buying remotely - I know all of the auction houses really well, but didn't buy anything via auction during the COVID period as I couldn't assess the items myself. Keep well,

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