Thursday 21 March 2013

Diversification Bias and the Winner's Curse

If you've ever wondered why your bookshelves are groaning with books you've never read and almost certainly never will - don't worry, the boys in white coats are on hand with an explanation, or at least a name: it's Diversification Bias. Seems we all have this inbuilt tendency to multiply our options whenever and wherever we can, be it while shopping at the supermarket - hence all that unused stuff in our fridges and food cupboards - or in the bookshop. We have an unrealistically broad idea of our habits and inclinations, which in practice tend to favour the familiar rut. For myself, I must say that I've more or less cured myself of this bias, at least while book buying, and rarely purchase anything I'm not going to read, or at least browse in or refer to - but it has taken me years to achieve this discipline, and I'm still periodically clearing my shelves of the fruits of long-standing Diversification Bias.
The scientists will no doubt explain this bias in evolutionary terms - whatever is, is adaptive, or was at some time - but it seems to do us modern humans no favours at all. It's also behind the phenomenon known as the Winner's Curse, according to which the winner in an auction will invariably be making a loss. This is because a roomful of bidders will spray their bids all around the target, some low, some high, and the winning bid, being the highest, will always be above what the object at auction is really 'worth'. I should point out - as I sit here in my latest natty eBay suit, a snip at £44 - that eBay mitigates this effect, as the bidder is not required to pay his highest bid, only to top the others. More like the Winner's Blessing...


6 comments:

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  2. We shall assume the report came from the university of spending what's left of the budget before the exchequer grabs it back. Interesting theory, next week I may want to be an Alan Sugar, meanwhile let's buy that roller and stick it in the garage.
    Auctions and the punters therein, strange places, odd people, I have seen office furniture under the hammer, for more than it's price, when new. Auction fever, the auctioneers love it, or at least the 12% part.

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  3. 5000 titles published per week? might as well Read at Random, like nige does! s/h book shop, close eyes, fumble forward, high and low..1st book fingers encounter buy and read...i did, walked out with Havelock Ellis, " Studies in the Psychology of Sex" (£2.50, hardback, stained, but not, i fear, by coffee....and no bus ticket). shall i tell you? why not! chapters run from modesty, the blush, through prevalence of masturbation, to the auto-erotic factor iin religion...early on "the perpetual unashamed efforts at self-manipualation witnessed amoung the insane",(he's done his research!). finally, after 300 exhausting pages, a conclusion- "in the case of moderate masturbation in healthy, well-born individuals, no seriously pernicious results neccessarily follow"...

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  4. P.S, anon #2!

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  5. marie stopes endorced the book thus..."like breathing a bag of soot...i felt dirty for 3 months!" anon#2

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