Mike Arauz's Blog – The Archives

My friend Brian Fountain told me about Swoopo. This auction site must be the most clever and innovative - albeit ethically dubious - idea I've heard of in a long time.

Swoopo hosts auctions, much like eBay, on tech-ish stuff like laptops, TVs, game consoles, and digital cameras. These items are new, and get sold on Swoopo for a small fraction of their regular retail price. The difference is that the bids go up at $0.12 increments automatically, and it costs the user (player) $0.60 for each bid that they place. So, essentially, the users are buying $0.60 lottery tickets that give them a chance to win a huge discount.

Mark Gimein has a great overview of the site, and why it's so brilliantly devious, "The Crack Cocaine of Auction Sites: Swoopo.com is the most efficient, addictive way to separate people from their money."

There's some serious psychology driving the success of this site. Jonah Lehrer adds his thoughts about what Wolfram Schultz's experiments have to do with Swoopo.

His experiments followed a simple protocol: He played a loud tone, waited for a few seconds, and then squirted a few drops of apple juice into the mouth of a monkey. While the experiment was unfolding, Schultz was probing the dopamine-rich areas of the monkey brain with a needle that monitored the electrical activity inside individual cells. At first the dopamine neurons didn't fire until the juice was delivered; they were responding to the actual reward. However, once the animal learned that the tone preceded the arrival of juice -- this requires only a few trials -- the same neurons began firing at the sound of the tone instead of the sweet reward. And then eventually, if the tone kept on predicting the juice, the cells went silent. They stopped firing altogether. Schultz calls these cells "prediction neurons," since they are more concerned with predicting rewards than actually receiving them.

What's interesting about this system is that it's all about expectation. Our dopamine neurons constantly generate patterns based upon experience: if this, then that. They realize that the tone predicts the juice, or that betting on the laptop might get us a discounted reward. This means that our dopamine circuitry isn't just titillated when we win the auction - those predictive cells are excited every time we bid, as they wait to see whether or not the reward will arrive.

More on the neuroscience of gambling here on Mind Hacks.

And finally, what is the Dollar Auction?

The dollar auction is a game created by economist Martin Shubik, in which an experimenter auctions off $1 to two competing bidders. The catch is that they have to pay for each bid. Each penny you bid, actually costs you a penny. The bidding starts at $0.01, and each bidder thinks that they can walk away with a deal, paying some fraction of a dollar and getting $1 in return. But, then they hit $0.99, and things start to get really interesting. Each bidder has now already payed $0.99 just to be in the game (and the auctioneer has already recouped his initial investment of $1). And at this point the players start to chase their investment. "I've already spent $1 to get $1, but if I back out now, I'll have spent $1. On the other hand, if I win, then I've only lost a few cents, over $1."