Q25 - In one-round sealed-bid auctions

[nbayar1212]

It seems that E is making a logical leap and whether or not E is correct is contingent on how one interprets situations that don't "make economic sense."

When I read E I thought if anything it makes the situation even more puzzling as people who are going to bid on an extremely desirable item apparently think its so desirable that they need to cash out obscene amounts of money in order to win the item. Therefore, they would be inclined to make bids that would be significantly above the reserve price in which case the paradox would not be resolved....

I specifically thought about when Xbox 360 came out near Christmas time and people were bidding thousands of dollars because they thought that the item is so desirable that they needed to bid amounts significantly higher than the market price for the item i.e. MSRP price in order to win it.

The explanation, however, seems to assume that when things don't make economic sense, people will refrain from bidding and that there will also be people who know this will happen who therefore place unusually low bids because I guess they are familiar with this psychological phenomenon - which to me seems like a lot of extra work if one is to try to resolve the paradox with this answer choice.

Am I missing something or is this somewhat of a bad question?

[ohthatpatrick]

I think we have the makings of a good lawyer here!

I agree with your rationale in terms of some potential ambiguity in how to interpret "doesn't make economic sense".

We interpret that to mean that potential bidders realize that they will have to bid unreasonably/unjustifiably high.

The potential ambiguity you pinpointed is, "how do we know how people will behave when it comes to making unreasonably high bids. Will they still be willing to make them, as they did with Xbox? Or will they shy away from this item, as LSAT would like us to believe for the sake of (E) being the correct answer?"

If you read the intro paragraph at the beginning of any LR section it says:
You are to choose the BEST answer; that is, the answer that most accurately and completely answers the question. You should not make assumptions that are by commonsense standards implausible, superfluous, or incompatible with the passage.

I refer to this because if we're asking ourselves about the potential ambiguity you discussed, the commonsense assumption is that people will NOT buy something that is unreasonably/unjustifiably high priced. It's certainly possible they would, but it's not commonsense to assume they would.

The language of "doesn't make economic sense" = insensible, irrational, unreasonable, unjustifiable .... this is supposed to give us commonsense grounds to anticipate that people would avoid making this "senseless" bid.

And, I think it's pretty easy to argue that (E) is the BEST answer, because I don't see any other answers advancing a reason why "extremely desirable items" are more vulnerable to the unreasonably low bid.

(A) and (B) don't bring up "extremely desirable items" at all, so they're worthless.

(C) only tells us roughly how high the reserve price is set on extremely desirable items, but we want a reason for WHY these items are particularly in need of having a reserve price.

(D) seems like the only competition for (E). With (D), maybe we could tell ourselves a story about guessing the prospective buyers, thereby thinking, "Well, since I know Old Man Moneybags is interested in this item, I have no shot at winning it. Thus, I will not bother bidding."

However, even with that story, Old Man Moneybags would be bidding, so that still doesn't quite explain the need for the reserve price.

Also, the story we tell ourselves with (D) to explain why no one would place any serious bids is less commonsense, more superfluous than the story we tell ourselves with (E) to explain why no one would place any serious bid.

Hope this helps.

[nbayar1212]

Yeah this helps for sure; I think the explanation you gave for the commonsense interpretation of how one acts when something doesn't make economic sense is pretty reasonable. I am definitely trying to not fight the LSAT way of thinking and just roll with it i.e. pick the BEST answer that the test probably has in mind.

Thank you.

[vincent.m]

Hi,

I am still not quite seeing this one. Is E right because it is saying, otherwise, no one would try to buy it and therefore, a reserve price is needed so people will actually try to bid for it? Thank you!

[maryadkins]

Hey Vincent,

I think (E) is saying hey, this item is so desirable that to actually win would be way too expensive. So we're either not going to bet at all or...Oooh, I know, we'll be REALLY low thinking that no one else will bet because they don't want to bet high, and maybe we'll be the only bet and win!

Does that clear things up?