Social proof is defined as follows:
Social proof, also known as informational social influence, is a psychological phenomenon where people assume the actions of others in an attempt to reflect correct behavior for a given situation.
Bidding at an auction is frequently used to illustrate the concept. Imagine you're interested in an item on eBay, one currently sitting at $50. After a lot of thought you decide that you want it, and that the absolute maximum you are willing to pay is $100. You enter $100, only to get immediate notice that you have been outbid, and that the item now sits at $102.50.
What is the immediate reaction? For most people it is a new higher bid – a new absolute max bid. And what if that is outbid? Again the response is very often yet another max bid.
Why the change? Why does the absolute maximum you are willing to pay get moved upward so easily? The answer commonly given is social proof.
When we look at the item sitting at $50 we're receiving a pretty powerful message, in the form of social proof, that nobody else thinks the item is worth much more than that. Setting our max bid at $100 is bold, aggressive, and very unlikely. We're saying that we believe that item to be worth more than twice what anybody else is willing to pay for it.
As soon as we see it get bid up to $102.50 the context changes. We're not the lunatic bidding $100 on a $50 item – we now see that other buyers recognize the value, and are willing to go a little bit higher. As long as we keep seeing social proof of the items value in the form of higher bids we're willing to spend a little bit more.
The recent auction of the household contents of an elderly couple who were moving to a much smaller home illustrated a very different version of the same phenomenon. This auction was conducted online, but required pickup of the items in person – no shipping. There were also no reserves or minimum bids, and the opening bid on all lots was $1. That meant that unless there were multiple bids items would sell for $1.
There were several lots that sold for very little (less than $5). In most of these cases the item sold for the single opening bid of $1.
Almost none of these items were picked up. They were paid for, but not picked up.
It makes no sense. The buyer registered for the auction, made a binding bid on the item, and paid for it, presumably because they wanted it. Then... they couldn't even bother to pick the item up? Again – they paid for, but did not collect, the items in question.
If the small, ultimately winning bid, was their max bid then it reflected the value they assigned, and they should have wanted to pick up the items. It makes no sense to bid a max of even $1 on something you don't plan on collecting.
But, in most cases, it can be presumed that these tiny winning bids reflected larger reserve bids, and the lack of competing bids meant they were never driven up.
This means that, logically, these buyers got amazing deals. Say they were prepared to pay $50, and won the auction for $1... they just saved $49! This is a great deal, and the buyer should be anxious to collect their incredible find.
But the social proof, in the form of a lack of competing bids, tells a different and very powerful story. It doesn't say they got a great deal, it says they bought junk.
When the auction ends without a competing bid it says that nobody else was interested in the item at any price. An item might seem like a good deal at $1, until you realize that nobody else was willing to pay even that. Suddenly it feels a lot like you just bought something everyone else considers junk.
It seems crazy but these buyers would have been happier, and almost guaranteed to pick up, if they had paid more. If they won that same item after it had been bid up to $100 they would have felt great because they would have known that other people valued it almost that much. The social proof would be in their favor. They'd rather pay more for the same item if (positive) social proof was included in the price.
But when the social proof told a different story, that the item was worthless, they were only too happy to just kiss the money goodbye.
