This posting refers to the paragraphs in Chapter 1 which deal with bounded rationality. This concept reveals that people do not always follow a logical path in their decision-making when purchasing goods. There are several reasons this happens. I found an article over the psychology of buying on eBay and the results were very interesting. There are two ways to buy on eBay: by auction, or the buy-it-now feature which allows one to immediately buy the product at a set price if there are no bids already placed on it. The study found that people usually pay around 7% higher in 51% of the auctions than the buy-it-now price. This is because they are basing their decisions on something rather than the price. They may get caught up in the competition, or they may be basing their decision on other factors which are sometimes not relevant such as the seller rating as compared to another.
The solution to this problem is to look at the buy-it-now price and decide if we would be willing to pay the price listed. If not, using eBay’s maximum bid function which allows us to set a maximum bid on the item, we should place a bid lower than the buy-it-now price and not bid again. This is because we are presumptuously stating with the maximum bid that that price is the highest price we are willing to pay. If the price goes over that, then we should look for a new auction. If we continue bidding, then we could lose money by going over the buy-it-now price, which we already decided was too much at the beginning.
I am not exempt from the numerous fallacies presented in the article. A couple of months ago, I bought a printer and put my bid actually above the buy-it-now price. I could have just bought the product and not worried about losing the item. I would encourage all eBay buyers to read the article, even though it is a little long.