Online auction "game" exploits cognitive blindspots to make you overspend

Here's a fascinating analysis of the mechanics of Swoop, an online auction game (they call it "entertainment shopping") (!) that's designed to be a Skinner box for separating you from your money while confounding your judgement:

First I will lay out for you how the site works. It is a ‘auction’ site…sort of. Swoopo sells bids for \$1. Each time you use a bid on an item the price is increased by \$0.15 for that item. So here is an example:

Person A buys 5 bids from Swoopo for \$5 total. Person A sees an auction for \$1000 and places the first bid. The auction is now at \$0.15. Person A now has a sunk cost of \$1 (the cost of the bid they used). There is no way to get that dollar back, win or lose. If Person A wins they must pay the \$0.15.

Person B also purchased \$5 of bids. Person B sees the same auction and places the second bid. The auction price is now \$0.30 (because each bid increases the cost by exactly 15 cents). Person B now has a sunk cost of \$1. If Person B wins they must pay the \$0.30. Swoopo now has \$2 in the bank and the auction is at 30 cents.

This can happen with as many users as there are suckers to start accounts. Why are they suckers? Because everybody that does not have the top spot just loses the money they spent on bids. *Poof* Gone. If you think this sounds a little like gambling or a complete scam you are not alone. People get swept up into the auction and don’t want to get nothing for the money they spent on bids. I think you will understand it better if I show you an example of people getting ripped off on the site.

An auction for a laptop that says on the auction page, and I quote, “Worth up to \$1,399.99″ The winning bidder, as stated on the site, placed 2020 bids. That is \$2,020!! And the auction page proclaims “Savings: 0%” when it really should read negative! So Swoopo made like \$600. BUT WAIT! The auction started at \$0.00 and finished at \$3,353.85. Now read that again. They were already up \$600 from the winners bids alone. The winner sucker still had to pay \$3,353.85 because that was the price of the auction. Okay, so Swoopo walks away with a cool \$4,000 pure profit. (Like a bad TV commercial) BUT WITH THERE’S MORE! Remember that bids are placed in 15 cent increments. That means that if the auction finished for \$3,353.85 you take that divided by \$0.15 which equals \$22,359 in bids!!!! That brings total profit to \$22,359 (bids) + \$3,353.85 (auction) -\$1,399.99 (retail cost of laptop, probably not their cost) = \$24,312.86

Pure Profit: A Look at Swoop (via Design with Intent)

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1. Gurduloo says:

I like those profit margins! What’s their stock symbol? I’m ready to invest!

2. VICTOR JIMENEZ says:

Thats a win-win strategy! BRAVO!
THATS profit, and not what ENRON did!
Who said that each second a stupid was born?

3. EH says:

I read about this the other day. They’re trying to be seen as some kind of legitimate Web 3.0 site. EPIC FAIL and they’ll be back to reinventing Comet Cursor in no time.

4. loganbouchard says:

i’m wondering what they must have said to their prospective customers to convince them it was a good idea.

5. LeSinge says:

This is mind boggling to me. Who is dumb enough to USE this? Looks like a Swoop employee commented on the article linked to.

6. Chairboy says:

It is our duty to separate fools from their money so that they may learn.

7. themindfantastic says:

This won’t probably last very long, but with profit margins like this, shit… who needs it to last long, a week and you could be a multimillionaire. But like anything this really can only be done ONCE. Hopefully no one literally loses their shirt with this, but if your paying to play, there has to be a level of personal responsibility involved.

8. noahpoah says:

Is raw, unadulterated stupidity a cognitive blindspot?

9. Spikeles says:

I actually had to read that twice to understand what was going on.

Another way of explaining it, is that you are basically buying tokens to bid. The tokens cost \$1 to buy, but they are only worth \$0.15 when you use them to bid on something. Once the auction is won, you still need to pay the cost of the item (since the tokens don’t pay for the item, they are just for the “privilege” of placing a bid).

10. jungletek says:

This is a tax on stupidity, and I’m all for it.

P.T. Barnum sure was right…

11. asuffield says:

This is less a tax on stupidity and more a tax on being a complete bloody moron. How do these people manage to get internet service without accidentally killing themselves and everybody else around them?

12. scdevine says:

What is the name of that suicide wager in game theory? The Von Neuman Wager? Something like that? I can’t seem to Google it up.

Upshot is that the winner AND the runner up of your trick auction BOTH have to pay. Try it out on Dnd night or something. Auction off a book or a pizza or something. Winner pays and gets the goodie, runner up pays and gets NOTHING. Bidding wars shoot way past the market value of the item in question due to the Revenge Factor and/or the Musical Chairs Effect.

It’s not named the Von Neuman Wager, though. Dang I forgot what it is!

13. cory says:

Oh sweet jesus please never let my wife see this site.

After reading the article I was so fascinated I decided to check it out. I could literally feel my resolve not to waste money on auctions melting away within seconds of seeing those tickers humming. The front page puts the flashing lights of Vegas to shame for its raw power to stimulate greed.

14. scdevine says:

Yes Thank You JEFFT in reply number 19.

It also works with non dollar-bill items. I tried this at game night with music composers and software engineers in the late 80s and they all fell for it. I figured a composer would hear the sour note in the algorithm but the engineers would get fooled by their tendency to wait for error and debug messages. Nope, they all went down! I had to step in an annul the results to keep the peace!

15. Anonymous says:

the problem with this is not that it’s a scam or that you will necessarily lose money “playing” it. It operates more like a casino than an auction site. Some will win big, most will lose, but the real winner is the house.

16. ScottTFrazer says:

Annnnnnd we wonder why our economy is in the shitter.

17. fg says:

Theft.

18. jazzu says:

This has been around for a long while, and currently there are atleast two such sites in finnish (sentti.fi and fiksuhuuto.fi, probably several others, too). Even if you don’t know the language you can get the gist of the sites just by looking at the numbers. The founders of fiksuhuuto are currently living somewhere warm, I think…

Then there’s a variation of the scheme, where you try to guess the lowest price, and if at the end of the auction you are the the only one betting for the lowest price, you get the stuff for that price (plus all the money you spent on setting all the wagers).

These sites are currently under investigation to see if they’re breaking the Finnish lottery laws. It’s obvious that winning is purely up to a random chance, but I guess “due process” is still needed. It doesn’t come as a surprise that the company HQ has moved to London and the servers reside in some more untouchable location.

Call me jealous, but I wish this kind of scamming would come to an end, soon. So many people are just way too desperate and self-deceiving that they fall for this over, and over, and over again. Makes me sad, really.

19. tp1024 says:

This is no better or worse than TV shows (at least in Germany) who ask their viewers to call in and win a laptop, a car, 5000 bucks or whatever. Of course each call costs 50 cents, so if enough people call often enough, it is quite profitable. Now I don’t know if they outlawed this as fraud or something, but some years ago they switched their model to having a “Quiz”. Of course not a real quiz (That some people may actually NOT know the answer to!), but a bogus one. The level of those questions is quite literally in the region of “What is the name of the American space agency? a) NASA b) CNN

20. teddanson says:

Wow, if I didn’t have some kind of scruples and a complete lack of coding ability, I’d get in on this like a shot! It’s not illegal, it’s just encouraging the exposure of utter stupidity. It seems more like an expensive education than exploitation.

21. Bugs says:

Is this the same company that used to be called Telebid? They had the exact same auction model and a similar-looking site about a year ago.

Either way, it’s clearly the work of some evil genius. It’s exploitative while staying totally honest about how it works in the same way that, say, an online (indeed, offline) casino is. According to the goof folks of metafiler where this popped up yesterday, they don’t seem to keep any stock in warehouse; instead they buy auction prizes as necessary.

So people pay to bid, pay to win, pay for shipping (I assume) and they don’t have any stock overheads to speak of. It’s grubby, but I can’t help a grudging admiration for a very elegant system.

22. heebs says:

Seriously?????? I guess you should never underestimate the stupidity of the human race and the amount of people that will make a tidy profit from such collosal stupidity!!

23. Dan Lockton says:

It did occur to me that going one stage further, the ‘winner’ of each auction need not even be real at all – it could simply be the site operator ‘buying’ the item back. If you were really evil, there need never be any real winners or any real products at all; you get lots of income from all the bidders, who – not being able to contact each other or organise themselves – never find out that the ‘winner’ never exists.

Just like we always suspected as kids that the fairground grabber claw was set up never to pick anything up.

24. Jerril says:

Ow. Cognitive sloppyness at its worst. I worked for a few years in the gambling industry (Bingo and Nevada/break open tickets) and frankly, this exploits the same sort of sloppy thinking as the Nevada tickets (or plain old lotto scratch tickets), while adding in a competition factor.

25. Kriss says:

Not all the buyers are totally dumb, I remember when I saw another place do this a while back and thought the same.

However a friend from Finland said it had been around there even longer and that it was possible to win on it. Most of the “auctions” do actually go for way below cost.

So generally I think it creates a lot of small losers and one big winner.

Which is no worse than say bingo, it just looks a lot worse at first glance.

26. jfaehnle says:

“Swoopo.” A clever name. Sounds just like the action that predatory birds take when attacking their prey, naturally defenseless rodents oblivious to the talons descending upon them. Just like this company attacking their prey, naturally defenseless consumers oblivious to the talons descending upon them.

Now the real question: Do we feel bad for the field mice that become lunch for falcons?

Now, this might sound a bit elitist. That’s not at all what I mean to be, but if you can’t protect yourself from engaging in obviously harmful(but seemingly legal) consumerism, than too bad for you. This isn’t some criminal targeting, unknowing elderly over the internet.

Do you feel bad when you see someone paying over \$4 per gallon when filling up their Hummer?

27. endospores says:

The day scamming people would become legal… this sets a massive precedent. Why didn’t i think of that?, time to get busy.

28. Red Leatherman says:

I had to look at the site and it was fascinating to watch the lemmings as they bid on a eighty dollar mouse, the winner paid \$228.45 for it. Swoopo netted \$532.45.
I wondered why I didn’t do that to another human for my own personal profit and I realized I would have to loose something in order to make a living by exploiting human stupidity. Gary Leon Ridgway, known as the Green River Killer when ask what made him different? and his reply was that he was “never burdened with” what he calls â€œthat caring thing”

29. Skep says:

This is no better or worse than TV shows (at least in Germany) who ask their viewers to call in and win a laptop, a car, 5000 bucks or whatever.

No, it is worse. With call in shows you have a random chance. With this scam all of your early “bids” are worthless.

30. Skep says:

…and, of course, the chief scam is calling the payments “bids.” A bid is something you don’t pay unless you win the bid. With this scam, you pay for losing. That mendacious use of the term “bid” is the primary scam.

31. Anonymous says:

As I type this message, there are wayward souls bidding on a 50 bid voucher, worth, I suppose, \$50. The price is at \$82.00 and climbing.

32. ill lich says:

I would think this business model wouldn’t last very long– eventually even the stupidest of users would get wise or go broke, but there is one way that this is worthwhile: if the winning bidder can jump in at the last second and win the item for well under actual value, thus only paying the final value plus their \$1 bid fee. BUT if everyone gets wise to that model then they would all be bidding at the last minute, most losing the auction and losing money. It seems this business model is dependent on a constant influx of new customers, which might work. And even if it doesn’t work for long, they will have racked up a nice profit in the meantime, like some kind of Ponzi scheme version of ebay.

33. danielorf says:

#19 TP1024 –

I think I watched something like that in the Netherlands or maybe Germany where they women took off their tops while asking quiz questions. It made zero sense to me at the time but I watched for hours…

34. richardortega says:

but did you reealize, post 32, that with every “last minute bid” the clock has time added to it. I just went to the site and saw a wii for \$100 and 15 sec to go…i was tempted. then as i watched the clock count down to 5 sec, another bidder and another bidder and all of the sudden the clock has 7 minutes on it and the price is at 120usd. not much of an auction or a “swoop” for that matter.

35. BK says:

So given how shady this looks on the surface, how do we even know that the “winning” bidder exists. Couldn’t Swoopo simply be purchasing the product itself and just pocketing the money paid for the bids?

36. merreborn says:

FWIW, on the “cash auctions” — where the item being auctioned is a quantity of cash — they offer a “100% discount” on the final “sale price”.

For example, in the auction of \$50 mentioned above, for which the bid is over \$80, the winner doesn’t have to pay that \$80.

Swoop still wins, because bidding the price up to \$80 requires well over five hundred \$1 bids.

37. SamF says:

It’s just a raffle. The only difference is, the winner is always the person who bought the last ticket. And the only thing they really win is the privelege to buy the item for \$.15 x the number of tickets sold.

38. Anonymous says:

In game theory this is a variant on a modified Dutch auction (which unfortunately covers a of not-very-related things so calling it “one variant of..” would be more accurate). It’s used to model situations where the participants know they’re losing but can’t afford to quit because incrementally losing a large amount is less painful than bailing out and instantly losing a smaller amount. The losing sides in the Civil War and WWII were examples of this, um, “strategy”.

39. Skep says:

@ SAMF.

Raffles are gambling, so if it is like a raffle then it is illegal.

40. bwcbwc says:

Ill Lich #33: Hence the name “Swoopo”. The only way to succeed is to “swoop in” at the last minute, and hope you’re the only one.

41. Anonymous says:

Brilliant. Game theory prizes for everyone there. I’m posting because its IMPORTANT to learn how this site is making its money and what the participants are getting so YOU won’t get scammed on the next site that has a different name, slightly different approach or more reasonable looking prices.

1) Swoopo will do the absolute best they can to see that the winner gets their goods.

There is every reason in the world for Swoopo NOT to scam out the highest bidder. They depend on having LOTS of bidders, the more the better. One accurate story about a winner not being able to get the item and their traffic will decline. Each sucessful bidder will run out and tell their friends what a great deal they got. The price of the item is usually negligable once you’ve counted up all the bids. Their greatest cost is probably advertising, not the price of the things they sell.

2) Swoopo will not pass away right away.

If Swoopo does decline in popularity the chance that each bidder will get the item will increase and the deal for the bidders remaining will improve. Even more than with other auctions if Swoopo does decline in popularity its time to jump in and buy things. If the company dies it will be because it was regulated out of business or spent all its cash on advertising.

3) Swoopo does not depend on chance and is not gambling.

As noted above the winner can indeed get a good deal provided he doesn’t spend all his money on bids. The outcome is decided by the actions of another party with no dice, cards or random elements involved. Think of it as challenging a buddy as to who can hold onto a electrical wire the longest. The winner is the guy who doesn’t give up, but in this case it also depends on other people not jumping in to take your buddy’s place when he gives up. Deciding when your buddy will give up or if someone else will jump in might not be something you have enough information about to make a reasonable estimation, but it is his decision, not chance.

4) So you support this thing?
Heck no. This is a game disguising itself as a shopping site pitched at people who don’t understand that its a game, that they will lose most of the time and who very probably don’t have the mental equipment and knowledge to figure out if they should play or not let alone how to win. I think they should get a big slapdown for their advertising and have to do a little more than posting that its ‘entertainment shopping.’ As for should it be illegal – well I’m not in favor of banning voluntary activities that only endanger or cost the participant (providing they have been advised of the danger).

5) Finally a note, most people are not getting a bad deal even when they win:
If you look at the auctions selling above retail price (excluding the \$1 for each bid made) you will find that no one actually pays that price, instead the ‘auction price’ is just a number that people can push up 0.15 at a time until everyone else gives up. With a few exceptions, if you believe the sales prices are above the retail you haven’t read the rules and would lose at that game.

Posted Anon as I’m on a public machine and don’t have my account info.

42. Anonymous says:

Seriously thinking about this swoopo and the many concerned people that have posted. It does my heart good to see so many of us know what a scam it is. I watched a PS3 go for 288, today. To sad. The person also had been bidding for a very long time so im thinking they paid more for the game than going to the store and buying it. What I want to know is who said these folks could sell a 2k computer 25K. Im speaking of the HP with the penny auctions. And that 25k is a humble price. Those auctions go for days. Finally are these people actually legal, and does anyone know if they are public traded? What is ticker symbol if so.

43. Anonymous says:

I realize that this article was written almost a year ago, but it seems at least overly provactive, at worst simply inaccurate. I’ve just discovered swoopo and have been watching some of the auction end prices. Perhaps the site has changed in the past year — it certainly has in it’s bid prices — but I have never seen an item auctioned off for more than the supposed retail price. While the practices that this article outlines would certainly be exploitative, it seems that they are currently less so.

44. Anonymous says:

Wow if that’s the case it should be called “Not a Chance”

45. Anonymous says:

What does the clock with the number in it mean?

46. too2busy says:

Here’s a swoopo education! Go to ‘www.swoopo.com’ and ‘www.swoopo.co.uk’ in two different browsers at the same time – side-by-side, or one on top of the other. You will see autions on both sites with the same bidders, the same bids (one in US Dollars, the other in UK pounds), the same timer amount, and the bids changing identically. Are these bids placed by bots on the site? I would say the probability of a major SCAM going on is extremely high!