I’d like to talk a bit about my favorite Massively Multiplayer Online PvP Game: eBay
On the off chance you’re not familiar, eBay is an auction platform. People post the trash they would like to sell, and other people post bids of how much they’d be willing to pay for that trash.
It’s important to note, gentle reader, that it is always trash. Occasionally it is trash which happens to be quite valuable. It is nevertheless trash.
But that’s okay, I’m a purveyor of fine trash and trash accessories. This is my native habitat.
Within the eBay ecosystem it’s somewhat customary to start an auction at $0.99, with the expectation that nothing actually sells for that much. It’s either worthless and nobody bids, or it’s quickly bid up to somewhere between what you could sell it for at a garage sale and what it’s probably actually worth.
On the buyer side, eBay asks a relatively simple question. “What is the most amount of dollarsmoney you would pay for this trash object?”
I cannot stress this enough, dear reader. The answer to “how many dollarydoos would you pay for this knicknack,” there is only one acceptable answer. Lies.
You see, under the hood eBay does something really quite clever. Let’s say that a Trashthing is currently listed at a bid of $5. I perceive the Trashthing and decide that the most I would pay for it is $80. I would like to spend less than that, but I would be willing to go up to $80. If I were to tell this to eBay, magically eBay would manage bids for me. It would start with $6, which beats the person who had bid $5, and now the Trashthing is listed at $6. Assuming nobody else comes along, I will pay $6 and receive my Trashthing.
But let us say that someone else comes along and decides they would like to pay $20 for the Trashthing. They don’t know that I’ve already told eBay I’m willing to pay $80, so they enter their $20 bid and like magic the price jumps to $21, and they’re notified they’ve lost. It is at this point, having already told eBay that they were willing to spend $20 and no more, that they walk away content in the knowledge that someone else was willing to pay more for the Trashthing than they were.
Except no they don’t. Do you know what they do? They extend their foul touchers to their mouse and their keyboard and they bid again. Again, dear reader. They put in a new maximum price of $30 or, if they are feeling particularly nasty, $35. And they lose again, because that’s still less than my $80.
$45? No. Fine. They walk away, dejected. Except if they had just said $45 from the start, they could have avoided the hassle. The outcome for everyone is identical. They don’t get the Trashthing because I’m willing to pay more, I still pay $46, slightly more than the next closest bidder, and the seller receives the local maximum price for their Trashthing.
There’s something deeply human about this process, because it happens every time. We renegotiate “the most we’d be willing to pay” based on the amount other people have said they’re willing to pay.
This is asymmetric information warfare at its most visceral. You do not know how much I value the thing, but you will find out repeatedly I value it more than you. And if I value it so highly, well, shouldn’t you? And why shouldn’t you have the Trashthing? It would look so very prim next to your collection of Whozits and Whatsits Galore. Thingamabobs? You’ve got twenty. But who cares, no big deal. You want more.
And that’s when things get meta. You know that I know this, but do I know that you know this? So what if, instead of the most I’d be willing to pay, I put half? Then I can find out where the set point is. Maybe I’m now the winner, maybe I’m not. In either case I have new information. And if you come along and nickel-and-dime me out of the winning position, I have no incentive to fight you. All I’ll do is drive the price up early. I have the signal I needed. At which point the winning strategy is always, always, to wait until as close to auction close as practical to swoop in with my true highest bid, in the hopes that you will be too busy in the real world to notice, and will have done something very similar, resulting in a “maximum bid” below your true bid.
Then, in approximately six hours, I discover if I’ve won yet another MiniDisc player.