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Swoopo

By cortex on July 10, 2009.

Over at The Big Money, Mark Gimein has a fascinating article on Swoopo.com. Gimein calls Swoopo "the crack cocaine of auction sites" and says it's "the evil bastard child of game theory and behavioral economics." The site works like this:

Consider the MacBook Pro that Swoopo sold on Sunday for that $35.86. Swoopo lists its suggested retail price at $1,799; judging by the specs, you can actually get a similar one online from Apple (AAPL) for $1,349, but let's not quibble. Either way, it's a heck of a discount. But now look at what the bidding fee does. For each "bid" the price of the computer goes up by a penny and Swoopo collects 60 cents. To get up to $35.86, it takes, yes, an incredible 3,585 bids, for each of which Swoopo gets its fee. That means that before selling this computer, Swoopo took in $2,151 in bidding fees. Yikes.

In essence, what your 60-cent bidding fee gets you at Swoopo is a ticket to a lottery, with a chance to get a high-end item at a ridiculously low price. With each bid the auction gets extended for a few seconds to keep it going as long as someone in the world is willing to take just one more shot. This can go on for a very, very long time. The winner of the MacBook Pro auction bid more than 750 times, accumulating $469.80 in fees.

Gimein emphasizes the "sunk cost" illusion as motivating repeated bidding on Swoopo. Because we've already bid a hundred times on the laptop, we assume we're more likely to win on the 101st bid. But that's false; those earlier bids are utterly irrelevant. And then there's the jackpot effect: people tend to fixate on the big prize (the cheap laptop, the lottery payout, etc.) and not pay attention to the incremental cost of participation. Each bid, after all, is only sixty cents, but we could save hundreds of dollars on that Apple laptop! Unfortunately, the brain is terrible at addition, and so we quickly lose track of how much money we've actually spent trying to acquire the prize. (It also helps that Swoopo requires people to prepay for "bids" in packs, which makes it even easier for us to not think about bids in terms of real money. If Swoopo bidders had to use physical coins for every bid, I imagine the site would be far less appealing.)

But I still don't think that explains Swoopo's addictive appeal. Instead, I think the real appeal of the website is the sheer uncertainty. As an item nears the end of bidding, a big countdown clock appears. At any moment, someone else can come up in and bid on the item, which then resets the clock to twenty seconds. The process repeats and repeats, until the price gets to a point that discourages other bidders. (It's probably less discouraging to you, since you've already sunk $50 in bidding fees.) But here's the dirty secret of the site: after placing a bid, you're forced to wait and watch. You have no way of knowing if your bid will win, or if someone else will swoop in and bid on the laptop at the last possible second. In other words, it's just like a slot machine: you put in a quarter and wait for the wheels to whirr. With swoopo, the random number generator is other people.

Why is this excruciating state so appealing? The answer, I think, has a lot to do with how our brains process rewards. The popular myth of dopamine is that the neurotransmitter equals pleasure, that it's the hedonist chemical responsible for sex, drugs and rock n' roll. The dopaminergic reality, not surprisingly, is actually much more complicated. Consider the landmark work of Wolfram Schultz. 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. Luke Clark, a neuroscientist at Cambridge, has done a very clever experiment that captures this process at work. Vaughan Bell, over at MindHacks, summarizes the results of the experiment:

The research team looked at the activity differences in the dopamine-rich mesolimbic system in a gambling task - comparing wins, misses and near-misses. Near-misses were where the reels on a slot machine just missed the payout.

It turns out that near-misses activate almost exactly the same dopamine circuits as actual wins - but here's the punchline - they were subjectively experienced as the most unpleasant outcome, even worse than total misses.

In other words, the dopamine system was firing like a rocket display but the experience was awful.

Interestingly, although near-misses were experienced as aversive they increased the desire to play the game but only when the person had some perception of control, by choosing what the 'lucky' picture would be. Of course, like choosing 'heads or tails', it's only an illusion of control because the outcome is random anyway.

This, in a nutshell, is how Swoopo works. It's one near-miss after another, as we bid and then bid again. The experience feels awful - we know we're wasting money - and yet we can't look away.

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Many Penny Auctions sites out there are failing. Whether it's poor
planning, lack of tech skills to run an efficient site, or all the above, the rate in which old ones die and new ones start is staggering. It is a good idea to research these sites and see which ones have been up the longest. A good way to find out if the penny auctions are good are to contact the customer service and see how fast you get a reply. If it's within a few hours you're probably on your way to finding a great penny auction site!

Regards,
Cathy Saar
Penny Auction

Just discovered your blog. Amazing stuff. Bravo times a thousand.

By Brandlogo (not verified) on 10 Jul 2009 #permalink

Following and reading since radio interview led to buying and reading 'How We Decide' and then this blog, etc.
Thanks !

First I'd heard of "Swoopo" -- fascinating design/strategy for a website, and fascinating what it says about human foibles...

Fascinating - simply fascinating!!

You lost me $24 dollars, Jonah. Thanks.

By Brett Hogan (not verified) on 12 Jul 2009 #permalink

I think its amazing how wrapped up technology is with our dopamine system, from facebook to something as simple as copy and paste.

hi check this out on ebay item #230357342803 no science required
regards tam

One of the classic findings of conditioning experiments was that consistent positive reinforcement doesn't engage an animal nearly as much as unreliable reinforcement. If a rat is always rewarded for pressing the bar, it gets bored. But throw in a little randomness and the rat will frantically press the bar for hours.

This fact was told to me by a guy who liked casino gambling. He thought that the phenomenon was crucial to the success of Las Vegas as a travel destination. I've never been inclined to gamble, which indicates my superiority. As does my preference for weekly extreme sudoku over the easy daily puzzles. Um...

By Roger Bigod (not verified) on 21 Jul 2009 #permalink

Sites like swoopo that have been around for a while are difficult/expensive to win... What you have to do is find the younger sites like bidfire that don't have a huge user base and you can really start to get some good deals. The bidfire site I mentioned has only been in operation a couple days and it looks like there are only about 10 people that keep on winning...

hank h:
Google implies the site has existed since February 2006. Just sayin'...

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Wow, I loved this post. I study economics and often point to the sunk cost fallacy when I discuss bidding on swoopo or other penny auction or entertainment shopping sites but your ideas bring the discussion to a new level. The monkey example reminds me of sex. When we think we might get to have sex we get very excited, but once we've been with the same partner for a while and we know we're going to get sex, the level of excitement is reduced. Once the monkey knew it was going to get juice it didn't get excited anymore. I blog about swoopo and other penny auctions over at http://www.penny-auction-insider.blogspot.com where I often try to connect the world of penny auctions to behavioral economics.

There are many sites like swoopo now and many do actually have shill bidders, developers even sell swoopo clone scripts with autobidding robots in the backend to illegal shill real bidders. it's pretty much criminal in my book, I recommend checking out the penny auction watchdog

http://www.pennyauctionwatch.com to learn more about shoddy practices and to save your money from scams. Look at Swoopo's rankings, tons of competition. That Mini Cooper has been going all week!

# Rank Site URL Alexa Rank QuantCast Rank QC Monthly Views Compete Rank Compete Monthly Views
14,915SwoopoSwoopo.com8,2325,479301,5003,527578,712

You can't win on Swoopo if they have "technical difficulties"
I bid on the count of 1 several times, bids were accepted and auction went on.
I bid on the count of 1 and the bid wasn't accepted, auction ended and I lost.
I bid on the count of 3, bid wasn't accepted - site froze- auction ended and I lost.
I bid on the count of 4!!!!!!! - site froze, auction ended, I lost.
WHen I complained about the first two situations I was told they had technical difficulties and they redeposited my 5 bids.
I'mm still waiting 5 days to hear about the count of 4 bid.

Really interesting post and the connection to reward pathways is fascinating. One thing that goes against this theory to an extent is the usage of bid-butlers. I'm not sure how many of these are used where the person is present Vs absent but in the case of absence...it's a pre-determined decision rather than continuous dopamine hits. I write a blog around the concepts of penny auctions and other fee based auctions, it can be found here: http://www.pay-per-bid-online-auctions.blogspot.com/
Take a read.

some website are complete fraud. They place their insiders to bid and at the end their people win with the Genuine members losing. Having some pity on genuine members they let them win some cheap items like Wii remote controller, Gift cards, etc
Also, I visited at http://www.pennyauctioninfo.com and there too I found the reviews about various website. yesterday, their site was down for some maintenance but now, its up.

As with all new services, educating consumers and arming them with appropriate expectations is key. Much of the criticism penny auctions receive stems from the fact that few people win and everyone expects to get a great deal without much effort. Noone can fault the auction sites for channeling these human needs. It's called business. It is up to consumers to educate themselves by doing their homework, such as checking out review sites like http://www.pennyauctionguide.com. It's just like everything in life: luck favors the prepared.

OK I checked out penny auction guide's website and there aren't really any reviews on there. I think that penny auction watch and pennyaucitonscam.com do a really good job in pointing out the sites that ruin it for everyone.

I've won some pretty nice stuff at a few penny auctions and have a pretty good strategy for the most part. If any one is interested you can find it at http://www.pennyauctionwinner.com
I wish everyone success and luck!
@Claire yes they're real, I've spoken to the guy who actually won the mini at madbid.

I think everyone has a chance of winning with the right strategy, one thing people have to remember its not as easy as just bidding and winning, especially with swoopo. I started referring to some helpful tips at http://www.pennyauctionstrategy.org, it's worth a try what do I have to lose?

Thanks for sharing the link, but unfortunately it seems to be down... Does anybody have a mirror or another source? Please reply to my post if you do!

I would appreciate if a staff member here at scienceblogs.com could post it.

Thanks,
Peter

I appreciate the post.
back some time, swoopo was ruling the penny auction market. But now there are a lot penny auction sites now. And theer is a need to keep check on them.

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Hi all,

Interesting article. I'm not sure I agree with all of it (as stated on one of my posts above) but a great read.

I write a couple of blogs on penny auctions which I've mentioned above. I also help to run a penny auction site called www.YooBeeDoo.co.uk

We have two auction models, a classic penny auction and a different auction model that we call a bid-block auction.

Check us out on PAW etc.

Thanks.

Great post. The near miss concept is something that I'm sure many penny auction bidders have experienced. Some marketers are now calling penny auctions "entertainment" or "competitive" shopping for many of the same reasons. There is a definite thrill to the chase itself.

I try to help bidders keep things balanced over at http://pennyauctionlist.com - Those who have a hard time disciplining themselves should avoid penny auctions...that near miss sensation will put them over the edge.

Josh

Good points?I would word that as any person who in reality doesn't write on blogs much (actually, this can be my first post), I don't think the term 'lurker' is very turning into to a non-posting reader. It's now not your fault the least bit , but possibly the blogosphere may come up with a greater, non-creepy title for the 90% of us that experience reading the content .

The problem with these penny auction sites like Madbid and Swoopo, is that the bidding fees you can rack up are outrageous. It's really hard to win anything on most of the sites. If you're going to use them, stick to the gift cards.

So the Mac book is priced at $1,799 and Swoopo racked up $2,151 in bids. If you were to lose just a couple in a row, you'd really be spending a lot more money than the stuff is worth. I mean, sure he got it for 35.86 plus the 400 in bidding fees, but is this the only thing he bid on? I'm sure he's lost far more money than $1,799. But maybe not, just sayin...

So the Mac book is priced at $1,799 and Swoopo racked up $2,151 in bids. If you were to lose just a couple in a row, you'd really be spending a lot more money than the stuff is worth. I mean, sure he got it for 35.86 plus the 400 in bidding fees, but is this the only thing he bid on? I'm sure he's lost far more money than $1,799. But maybe not, just sayin...

Swoopo is definitely addicting but I would go as far as calling it the crack of auction sites. I think with any site like this self control is very important. If you're not able to stop then this isn't for you. However this can introduce a whole new business model for stay at home parents, and they can effectively win items and resell them. What do you guys think?

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