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Competitive Streak: The science of bidding and our brains

Tags: Auctions Residential

Billed as the most transparent method of sale, the auction process is more science than just simple strategy.

As a beacon of the human condition, the philosophy of the auction process hinges on transparency to create competition, and psychology plays a vital role in understanding the behaviour of both buyers and sellers.

Commonly referred to as the ‘audience effect’, the idea that people behave differently in the presence of others versus when they are alone dates back to the 1890’s when American psychologist Norman Triplett first began his research comparing the differing performance of cyclists when paired against each other, and then the clock.

Fast-forward 100 years and the theory has evolved through a variety of contemporary studies which have added strength to the relationship between social perception and a tendency to ‘over-perform’ in the presence of others – or in the case of auctions, out-bid the competition. 

Similarly stressing the role of social competition on behaviour, researchers from the University of Missouri found that the size of the human brain has nearly tripled in size over the last two million years, with particular growth taking place in the medial prefrontal cortex (mPFC) and temporoparietal junction (TPJ).

These areas are largely responsible for social perception and attributing the results to the growing importance of social status in a modern world, the data found that  evolution is in fact an adaptation to survive.

Adding weight to the theory, in a study conducted by the Harvard Business Review, researchers found that budding property buyers are more likely to bid past their budget when competing in a smaller field determined as either one or two other bidders. In competition of this nature, competitors reported greater feelings of exhilaration and agitation, which in turn fuelled the desire to perform beyond their own reasonable limits.

Given the added pressure of a little thing called ‘competitive arousal’, where winning is said to induce a positive physiological response and an adrenaline-fuelled ‘win-at-all-costs’ mindset  (releasing the neurotransmitter dopamine which influences reward centres of the brain), the research paints a clear picture that a win in the auction room has implications that far supersede simply securing the keys.

Competition it turns out, can be a property’s best friend - and the recent auctions held at Bayleys offices in Rotorua and Gisborne are a testament to this.

Seeing the successful sale of 24 bare land sections in the new Rotorua subdivision of Baxendale which sold in just 90 minutes recently, Bayleys Rotorua branch manager Beth Millard agrees that psychology plays a vital role in a successful sale outcome.

“Nearly 150 people were present in the auction room that evening and the ‘audience effect’ looked in full swing, evidenced by some buyers extending their financial ceiling in order to secure a first choice section.”

Karen Raureti, sales manager for Bayleys Gisborne holds a similar view, explaining that during the recent auctions in which her team reported 13 out of 17 properties sold under the hammer, fierce bidding ensued across those homes when just two or three buyers went head-to-head, illustrating the theory of competitive arousal in action.

“While certainly beneficial to have a handle on the psychology of the auction process, it is worthwhile to note that success come game-day is the culmination of strategic marketing which drives competition, utilising skilful negotiation techniques, and leadership in the room come auction day” Ms Raureti says.

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