For whatever reason, Wavebid just hired a couple recent grads who majored in philosophy. They’re practically worthless, or so we first thought. Having very little experience with the auction industry we expected a drawn out orientation period. It soon became obvious that they learn quickly, and have wonderful minds for business. After only a couple months one of these young men, Cal King, made a very astute observation regarding business practices in this industry which we felt was worth sharing. The following is a short explanation of one of Aristotle’s 13 fallacies, written by Cal – Who would have thought that ancient man would have any insight for today’s auctioneering culture?
I would like to draw your attention to an often overlooked fallacy: the sunk cost fallacy. This fallacy we see most often in business and economics. For example, a huge corporation spends $1 million developing a new product, but halfway through the development realize the market has changed and the product is going to be a huge failure. Instead of stopping while they’re ahead, the company completes the development of the product, spending another $1 million in the process, and launches. The product is, as they predicted, a flop and they recoup only a fraction of the money they spent. The company in this example lost a great deal of money because they were unwilling to acknowledge that the money they had already spent was gone, for better or for worse, and instead of quitting while only slightly behind, they doubled down and lost even more money. If instead the company had stopped their development, they would have only “lost” $1 million, but at the same time would have “saved” $1 million in prospective costs. Instead, they opted to actually lose $2 million. The sunk cost fallacy is a pernicious one indeed, but it doesn’t need to take the form of a huge corporation with millions of dollars to spend. An individual can invoke the sunk cost fallacy to justify the completion of, say, mowing the lawn without having taken his Claritin because “Well, I’m almost done. Might as well finish it out” even when he knows he’ll regret it later. The sunk cost fallacy is an emotional response relying on “an overly optimistic probability bias” (a fancy way of saying ‘putting your mouth where your money is’) or a requisite of personal responsibility (‘I’ve already done this much, I might as well finish it out’).
So how does this apply to the auction industry? Over the past 20 years this industry has seen major advancements in software technologies. Many business owners invested thousands of dollars into these tools only to find out that a year or two later something bigger, better and easier had hit the market. Too many auctioneers now find themselves in the position of owning or subscribing to an outdated, failing toolset, but are afraid to make the switch to something new because of exactly what Cal pointed out, they don’t want to admit that an investment has been lost. The broader software industry has responded to this by offering free and automatic upgrades which come with a cloud-based platform – like Wavebid 😉 As new developments occur, the user has access to them immediately. No paid upgrades, or “latest versions,” just one evolving system benefitting the old and new alike. The problem now is convincing those who are stuck in yesterday to move forward.
And so in his quirky philosophy-major way, Cal offers this humble advice, “It behooves the individual to closely examine all of his or her decisions to ensure the absence of irrational and emotional thinking. Business owners in particular must be very careful to avoid fallacies of logic as success does not come to those who believe harder, but rather to those who think more clearly.”