Behavioural Economics is all the rage these days. It recognizes that we are not fully rational and tries to to ‘nudge’ us to make positive changes in their lives (for instance, creating systems where if you get a raise it is automatically saved in a 401(k) unless you opt out).
But what if you wanted to create a system that instead preyed on people’s irrationality? You’d probably create an auction site like Swoopo. Swoopo offers products (usually high tech) starting at $0.15. A timer then starts counting down, and if it hits zero, whoever bid that price gets the product at that price. As the timer’s counting down, you can nudge the bid higher by $0.15 by clicking a button – and now you’re the highest bidder.
What’s the catch? It costs you $0.75 to place a bid.
This is the perfect ‘crazy’ machine. Users think that they’re buying the product for a low price (say, 80% of what it would cost at Amazon), but the system is designed so that everyone who has bid has massively subsidized the cost of the prize. It’s like a Ponzi scheme where everyone’s agreed to the rules beforehand and is actively competing to be the last sucker.
Don’t believe me? I watched the site for a few seconds today and a Wii + Wii Sports was bidding at $85.80. If it sold at that price, Swoopo would get $85.80 + 571 (the number of bids) * $0.15. That’s $428.25. A Wii currently sells for $249.99 on Amazon; Wii Sports is about $50.
Even crazier: it didn’t go at that price. I watched the bids rise to $103.35 before I couldn’t stand to watch any longer. At that point Swoopo was going to get at least $619.35 in total cash for it.
Congrats to Swoopo for creating the perfect machine for converting human greed into cash.