Why Is It So Easy to Overspend at Car Dealer Auctions?

By Mike Richards Posted: 09/26/2017

The idea of getting a great bargain on a high-priced item like a car is a big part of why so many dealers and consumers flock to car dealer auctions. But why does it seem like so many people end up overspending at auctions rather than getting the big savings they were after? In fact, estimates from various online auction sites show that when buyers avoid the “Buy it now” button and go for the auction, nearly 50% of the time, the price will end up being higher than the “Buy it now” option. But why?

Auction Fever

Auction fever is a known phenomenon that affects people who get into social situations where competition and excitement levels are very high. Adrenaline reacts to the excitement, and that makes your fight or flight response kick in. For a large swath of humans, that fighting instinct is too hard to ignore, even if you have a set-in-stone budget in mind. This is compounded even more when you actually want the car you are bidding on at the car dealer auction. Not only is your brain reacting to the activity of other people, but also to your own internal motivation.

Endowment Effect

When we own something, we tend to place a much higher value on it than we would if we just saw it on the street somewhere. So, when auctioneers encourage bidders to come check out the cars ahead of time, or to talk to the sellers about the cars – sure, they are doing you a favor by letting you inspect for damage. But they are also encouraging you to start thinking of the car you want as yours. With plenty of time to imagine this car as solving all your needs – maybe you picture selling it for a high price, or maybe you picture getting your whole family into one car comfortably – you fall prey to the endowment effect, and value the car much higher than you would have before.


In an experiment performed at Princeton, researchers discovered something pretty interesting about humans. As long as humans thought they were bidding against a machine, they would think rationally about their budget and their needs, reducing overbidding to nearly nothing. The minute they were led to believe that their opponent was a human, they were overbidding regularly, regardless of the type of bidding system. What it boils down to is that humans can be competitive animals, and that’s part of what makes car dealer auctions so fun!

Online car dealer auctions help combat some of these psychological responses by getting rid of the external stimuli and making it possible for you to think before you commit. It’s also much easier to stay detached from a car when you can’t see it in person before you buy. So, if you’ve ever overbid at a live auction, give an online auction a try instead.