Friday, July 17, 2009

It isn't gambling

You remember Kindergarten Cop, the scene where Arnold Schwarzenegger is arguing with a bunch of school-children about why he has a headache? "Maybe it's a tumor," one kid helpfully suggests. "It's not a tumor!" Schwarzenegger bellows.

I sometimes feel like that when talking about penny auctions with people who don't play them. I want to yell, "It's not gambling!"

And it isn't gambling.

Gambling means playing games of chance for money -- and in penny auctions, there's no element of chance. None. The outcome of the auction is strictly dictated by the actions of the players, the same as regular auctions, the same, for that matter, as chess.

Why do people sometimes complain that it feels like gambling? That it feels like there is a huge element of chance?

Two reasons. The first is, it depends a lot of factors that aren't random but that the bidders don't know: the number of other bidders, their state of mind, the actual value of the merchandise, and so on.

That factor isn't unusual. When you buy or sell a house (something I just did), there is a very similar set of question. What is the house really worth? How many potential buyers are out there? How much can they spend?

The other factor is game theory. Let me explain.

Say, you are in an ordinary auction. A laptop is on the block, the current bid is $400, you have to decide whether to bid or not. The question is pretty simple: is the laptop worth $401 to you? If it isn't, don't bid. If it is, bid -- you'll either win and get it, or someone will overbid and you have lost nothing.

But now imagine you are in a penny auction. There's a laptop selling for $40. Of course, a laptop is worth $40; even if you don't want a laptop, you could put it on Craig's List and make a bundle. Given that, you should definitely bid, shouldn't you?

Well, no, you might be overbid and then you're out a dollar -- indeed, you almost certainly will be overbid, because a laptop that is a good buy at $40 is probably still a good buy at $40.01. So you shouldn't bid.

But wait, the person who is waiting to outbid you is asking himself the same question -- and if he has the same question, he should get the same answer, and not bid. But if he isn't going to bid, then you should!

To make it worse, the value of winning decreases as the auction goes on. If you get a $400 laptop for $40, you've won the equivalent of $360; if the laptop goes for $40.01, you've only won $359.99, not quite as good a deal.

On the other hand, as the value of winning decreases, the chance of winning increases, because fewer and fewer people are willing to pay a dollar for a chance at the smaller amount.

On the other-other hand, if fewer people are willing to play, more people are willing to play, because they can reason that other players have been chased away. (Remember Yogi Berra saying about a local restaurant, ""Nobody goes there no more; it's too crowded!" Remember my saying, "Penny auctions are popular because they're unpopular.")

All these weird, contradictory influences make a penny auction, although exhilarating, very difficult to comprehend and almost impossible to win reliably.

But it isn't gambling.

1 comment:

  1. It IS gambling!!!

    You write:
    "Gambling means playing games of chance for money -- and in penny auctions, there's no element of chance. None. The outcome of the auction is strictly dictated by the actions of the players, the same as regular auctions, the same, for that matter, as chess."

    Proof that penny auctions are chance:

    (1) Network lag: First, I observed and have screenshots to show that my click on the bid button took anywhere from zero (instantaneous) to THIRTEEN seconds to register on the auction server. I also had many bid clicks NEVER register! Does this happen in a LIVE, REAL auction? Do bids where you RAISE your hand visibly ever go unnoticed? (No, b/c there are witnesses whose JOB it is to see those who bid--and if you aren't getting seen well, you simply move your position to be more visible to the auctioneer and crew--fixed instantly. But for online auctions, there are NO bid witnesses, no one who will witness that you in fact DID bid or not, when technical difficulty or errors are encountered.) This introduces INARGUABLE and RANDOM chance into the auction--not to know if your bids will ever be recognized and not to know in how many seconds they will be recognized. So unless a penny auction site finds a way to ELIMINATE network lag, ALL penny auctions have this element of chance, from the getgo! I lost 3 of 8 auctions on network lag--I don't call that chance. (I even wonder how EASY it would be for an auction site to pick to directly ignore people's bids--and with network lag as an element, who can prove or disprove a thing? Not anyone without extremely sophisticated test equipment AND full access to the auction servers.)

    (2) Second, in line with my wondering above--the auction in which I participated (Swoopo)--I want to know how it can be said that my bid was not registered (b/c of network lag, they say), when their time clock information sent to me CONTINUED to get updated? How can the network correctly send me a time clock update one 1/8th of a second, then the next half second, before the change to the next second, NOT register my bid click (my BID button changed colors to show that I had clicked it), and then go back to sending me the next 1/8th of a second (actually less) clock update on time? So it sends ME information without hitch, yet it doesn't receive mine without problems? No, I just don't believe in a one-way network lag error. (OK, yes, many times the auction clock as sent to me did stumble and have delays, but I am talking about times the clock, as sent to me, did not stumble or have delays, yet my bids were lost, unrecognized, or delayed past auction close/end. And when this "network lag" error can cost me $50 in bids each time it happens....) I have screenshots of Swoopo showing me 1 second on the clock while saying that the auction ended, and my bid (and my $50) was lost and taken away.

    Stop lying and telling others and yourself that penny auctions are not gambling! In a REAL, legitimate auction, my bids are NOT going to go unrecognized, AGAIN and AGAIN! But I can't click my mouse "harder" and "louder" to fix my bids not being recognized--whereas in an actual auction, I can physically correct any problem I may experience in my bids being recognized.