The fiction of hammer prices

Apologies that I only reported the hammer prices in my previous review of the Christie’s sale. They of course mean very little. What matters is the total amount the buyer pays. Nevertheless the hammer price is useful if you’re comparing the price paid to the estimate, since the estimate is for the hammer price !

Felix Salmon makes some interesting points about auction hammer prices in this blog post.

The auction is mechanism for determining a buyer and a price, it just happens to be full of psychological tricks designed to make the final price as high as possible. One of those  tricks is the hammer price, which is substantially lower than the final price paid: it makes you feel like you’re bidding less than you actually are.

And, sounding slightly familiar..

There’s also the endowment effect, as explained by Don Thompson: Each bidder starts with a top price in mind. When he momentarily becomes the high bidder, there is an “endowment effect.” He will pay more not to give up the painting, not to lose. Amid the tension of the auction, his reference point has changed to “I should win, this painting should be mine.” He is aware of the regret he would feel at losing what has become “his”.