Sunk Costs in the Hobby Video

[Leon]

Nice analogies but I respectfully disagree about supply. It really just doesn't matter. If I have a unique card and there is no demand then the sales price will be low. That said, there are over 1000 Jordon's in a 10 holder (I believe)....but the demand is through the roof so it's valuable. Supply rarely has to do with price since demand will set the price. All in my humble opinion...

Originally Posted by obcmac

While I agree with the discussion presented in the video, this analysis and discussion always seems to miss the key element of the market. There isn't one objective price for an individual card, but rather there are a group of buyers all with different valuations of the same card (aka, the good old demand curve). Dealers are buying in a competitive, but limited (due to time and information constraints) markets, and trying to reallocate to those with the highest valuation. A market clearing price isn't the "true price". A dealer will seek out individuals with highest willingness to pay and try to sell to them near their maximum. This is where supply matters a lot...89 UD Griffey, then you are going to get a price near the market clearing price since the selling market is competitive...cards with limited population can sell closer to the buyer's valuation instead of the underbidder valuation + 1 bid. A good business rule of thumb is to sell cards for more than you buy them for...and if you offer a dealer less than they paid, then it is often in the best interest of the dealer to wait until they find someone with a higher willingness to pay. So...if you paid $100 for your Kevin Seitzer rookie, holding out for $150 would be a sunk cost fallacy...but holding out for someone to pay a little more on a rare pre-war card isn't an example of the same error, even if one or two sales appear at lower levels.

[packs]

The only times I've ever lost money on a sale have been when I've bought a card I was only interested in selling. Every card I've ever bought for my personal collection has only appreciated.

[raulus]

Any chance you are both right?

I would posit that when it comes to items that are abundantly available, and where there is similarly robust demand, they often sell like commodities, with prices that fall within a fairly tight range.

On the other hand, for items that are rare and difficult to find, especially where there is very thin demand, assuming the owner has no immediate financial pressure to sell, the market is ultimately whatever the seller is willing to accept, which is often going to be a function of the most aggressive buyer.

Naturally, not every item in the universe falls neatly into these two categories, so you're going to have lots of pieces that fall somewhere in-between, depending on the relative availability and demand for the item, with some a bit more on one end of the spectrum or the other. And over time, some items may even shift as relative demand for the item waxes and wanes.

Originally Posted by Leon

Nice analogies but I respectfully disagree about supply. It really just doesn't matter. If I have a unique card and there is no demand then the sales price will be low. That said, there are over 1000 Jordon's in a 10 holder (I believe)....but the demand is through the roof so it's valuable. Supply rarely has to do with price since demand will set the price. All in my humble opinion...

Quote:
Originally Posted by obcmac
While I agree with the discussion presented in the video, this analysis and discussion always seems to miss the key element of the market. There isn't one objective price for an individual card, but rather there are a group of buyers all with different valuations of the same card (aka, the good old demand curve). Dealers are buying in a competitive, but limited (due to time and information constraints) markets, and trying to reallocate to those with the highest valuation. A market clearing price isn't the "true price". A dealer will seek out individuals with highest willingness to pay and try to sell to them near their maximum. This is where supply matters a lot...89 UD Griffey, then you are going to get a price near the market clearing price since the selling market is competitive...cards with limited population can sell closer to the buyer's valuation instead of the underbidder valuation + 1 bid. A good business rule of thumb is to sell cards for more than you buy them for...and if you offer a dealer less than they paid, then it is often in the best interest of the dealer to wait until they find someone with a higher willingness to pay. So...if you paid $100 for your Kevin Seitzer rookie, holding out for $150 would be a sunk cost fallacy...but holding out for someone to pay a little more on a rare pre-war card isn't an example of the same error, even if one or two sales appear at lower levels.

[Yoda]

Part of the reason dealers so often put on a sticker price bearing no relation to reality is their deep emotional attachment to the card. The thought of actually selling it at whatever price makes them nauseous. It is part of the conundrum of being a collector/dealer. That's one of the reasons you see 'for display only' in some dealers' cases at shows. The demand side is there but the supply side can be very reluctant.

[parkplace33]

Originally Posted by Yoda

Part of the reason dealers so often put on a sticker price bearing no relation to reality is their deep emotional attachment to the card. The thought of actually selling it at whatever price makes them nauseous. It is part of the conundrum of being a collector/dealer. That's one of the reasons you see 'for display only' in some dealers' cases at shows. The demand side is there but the supply side can be very reluctant.

I actually believe this is no longer the case. Most dealers I know and deal with are straight dealers, very few collector/dealers these days.

[notfast]

I’m amazed at how dumb this guys college classmates were on the examples that were given.

[Lorewalker]

Originally Posted by Leon

Supply rarely has to do with price since demand will set the price. All in my humble opinion...

I would absolutely agree with this.

And as a buyer when a seller rejects my offer I appreciate it if they tell me why which is usually that they have paid too close or more than what I was offering.

Cards are not like shares of Apple stock. Cards change hands when the numbers make sense to both sides and each person comes with their own expectations and limits.

[raulus]

I think the reason why the sunk cost fallacy exists as a phenomenon is because humans are often illogical and emotional, in spite of our better judgment. That and we hate to lose money and/or experience pain. Studies have consistently shown that people will routinely choose illogical options if it means that they can avoid loss/pain.

The other element is that we are all perpetually optimistic when it comes to our items. Just because it's down today doesn't mean that it will be down tomorrow. And if I'm convinced it will be back up tomorrow, then I'm less inclined to sell today unless I feel like I'm getting tomorrow's price.

[Exhibitman]

I've had the experience more than once (and as recently as last week) where a buyer eventually met my price on a good item. On those occasions, I've declined earlier lower offers with a sunk cost argument. It may be a fallacy, but the reality is that if you are not motivated to sell an item, you do not need to take a loss on it and telling the buyer you will not is a valid position to take, but only if you really are willing to let the sale walk. Otherwise, you're just lying.

[Snowman]

Originally Posted by Leon

Nice analogies but I respectfully disagree about supply. It really just doesn't matter. If I have a unique card and there is no demand then the sales price will be low. That said, there are over 1000 Jordon's in a 10 holder (I believe)....but the demand is through the roof so it's valuable. Supply rarely has to do with price since demand will set the price. All in my humble opinion...

I think obcmac's point (and I think it's a good one) is that supply is an important factor to account for when determining whether or not a card is likely to reach its full price potential if auctioned off.

I see this all the time as an OCD-centering-obsessed collector. If I'm buying a card to complete one of my centered vintage sets that is really difficult to find, I might bid $100 for it at auction but win it for $20 because the right people didn't see it that week. The next time that same card goes up for auction, it might sell for $80 though. It happens all the time with difficult-to-find centered cards in widely collected sets. However, with a Griffey Upper Deck RC, there's no question at all about what it's currently worth or what the next one will sell for because of the supply being as high as it is. It is traded multiple times per day, every day on every major auction site. Just look up what it's been selling for recently, and you can predict with a high degree of certainty what the next one will sell for +/- a few dollars. But if you take a card that trades hands once a year or once every few years, it's much more difficult to predict what the sales price might be if it were to go up for auction, and the variance in prices realized will be off the charts. Instead of a card selling for $X +/- 5% with cards that have an abundant supply, it can easily be $X +/- 75% with something much rarer.

Also, supply in itself can even be a driver of demand. There is a harmonic mean that comes into play sometimes between supply and demand. We see this often. There are a ton of cards with extremely low supply and almost zero demand. This is precisely why the T206 Wagner is worth as much as it is though. The supply of T206s in general is fairly abundant, though not excessive, which operates as one of the drivers of collectibility. This in turn creates added demand. It's similar to 1952 Topps cards being plentiful enough to make the set worth chasing, while still rare enough to support strong prices.

We also see it with the 1948 Leaf set where the supply of regular and short-printed cards causes a divide in the set. There are enough of these cards in total to drive people to want to collect the set, which creates additional demand pressures on the less obtainable cards like the Satchel Paige. Then, copies of the Paige go for bonkers prices because of the harmonic mean between supply and demand of the set. It creates a virtuous loop of sorts.

[Leon]

It's always ok to politely disagree. As someone who has collected some of the rarest cards in the hobby, not in a grade but in total population, I have some experience in the matter. I think the collection I sold is still online. Rarity doesn't equal value, plain and simple. Sure, it can be part of an equation, but demand is what makes value for the most part.
Otherwise, these cards below would be 100k cards....

Originally Posted by Snowman

I think obcmac's point (and I think it's a good one) is that supply is an important factor to account for when determining whether or not a card is likely to reach its full price potential if auctioned off.

I see this all the time as an OCD-centering-obsessed collector. If I'm buying a card to complete one of my centered vintage sets that is really difficult to find, I might bid $100 for it at auction but win it for $20 because the right people didn't see it that week. The next time that same card goes up for auction, it might sell for $80 though. It happens all the time with difficult-to-find centered cards in widely collected sets. However, with a Griffey Upper Deck RC, there's no question at all about what it's currently worth or what the next one will sell for because of the supply being as high as it is. It is traded multiple times per day, every day on every major auction site. Just look up what it's been selling for recently, and you can predict with a high degree of certainty what the next one will sell for +/- a few dollars. But if you take a card that trades hands once a year or once every few years, it's much more difficult to predict what the sales price might be if it were to go up for auction, and the variance in prices realized will be off the charts. Instead of a card selling for $X +/- 5% with cards that have an abundant supply, it can easily be $X +/- 75% with something much rarer.

Also, supply in itself can even be a driver of demand. There is a harmonic mean that comes into play sometimes between supply and demand. We see this often. There are a ton of cards with extremely low supply and almost zero demand. This is precisely why the T206 Wagner is worth as much as it is though. The supply of T206s in general is fairly abundant, though not excessive, which operates as one of the drivers of collectibility. This in turn creates added demand. It's similar to 1952 Topps cards being plentiful enough to make the set worth chasing, while still rare enough to support strong prices.

We also see it with the 1948 Leaf set where the supply of regular and short-printed cards causes a divide in the set. There are enough of these cards in total to drive people to want to collect the set, which creates additional demand pressures on the less obtainable cards like the Satchel Paige. Then, copies of the Paige go for bonkers prices because of the harmonic mean between supply and demand of the set. It creates a virtuous loop of sorts.

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