silly economists

[skolem_hull]

At the coffee shop, I overheard a few people (econ grad students? or something like that?) talking, one mentioning the auction website Swoopo (which I'd never heard of-- they sell various items with a starting auction price of zero, and you can pay $0.60 to make a bid, which increments the current price by $0.12--so the winner ends up with the item

Comments

[skolem_hull]

What do you mean when you say 'scam'? I have worries about this claim.

Do you mean that Swoopo is dishonest about how it works? (The paper mentions finding that their 'suggested retail price' is a bit higher than on Amazon. This bothers me, but doesn't seem like enough to call it a scam.)

Or that despite Swoopo's transparency (it seems pretty clear and easy to understand how it works), people wind up behaving in a way that's not in their best interest, maybe 'manipulated' (though I'd want a better understanding of what 'manipulation' is supposed to mean) into doing so.

I have trouble calling something like that a 'scam' (is most gambling a 'scam'?),

But another thing that bothers me: I'm not sure people making claims like this ('Swoopo is a scam') give the customers enough credit. In this case I'd imagine most people know they're paying, in part, for entertainment. But more generally I get skeptical about claims that some journalist (or whoever) writing about something knows better than the people who use it what's best for them. (I'm sure it's true sometimes, but still.)

Anyway, you can go to the website and look at the closing prices for various items, and it doesn't look like Swoopo has ridiculous profits on each item. But I haven't checked the data in the paper either.

[foxfour]

I haven't thought about Swoopo in a long time, but I remember a number of things that basically described it as a scam, mostly due to disingenuous self-description. You're right that people can know they're paying for entertainment, but I think a scam can be usefully said to be something which doesn't want people to know that that's what they're doing-and it seemed Swoopo was trying to get people to think that they were competing for bargains, rather than paying for entertainment. I seem also to recall that everyone pays for each of those bids, so the sale price is only a small portion of what Swoopo gets for a sold item? As I say, it's been a while since I thought about it.

[skolem_hull]

...the sale price is only a small portion of what Swoopo gets for a sold item?

Yeah. But it's pretty easy to figure out how much Swoopo did get, since each bid increments the price by a fixed amount, so you can divide to find out how many bids were made.

In some sense you are competing for a bargain... just like in other gambling you're competing for money, with this you're competing for a bargain. (And of course you lose something if you lose that competition.)

[foxfour]

Also, yes, most gambling is a scam. You do not win against the house, while they represent that you could-I would call that a scam. You can win against the house just enough that they can keep up the illusion of you having a chance.

[skolem_hull]

You can win against the house! Just not 'on average', or 'in the limit.'

Maybe some people even can win against the house, in some gambling setups. But not many, I bet. And note that in Swoopo (and some gambling setups) the players aren't just you and the house, but you, lots of other people, and the house.

Also: If some group of people value $1000 more than 1000 times as much as they value $1, they (on average) and the house can both win!