Science in Finance I Revisited: Supply and demand, and spoon bending

I attended some of the recent Savoy auction by Bonhams this week and I couldn’t resist observing the events from a quant perspective! In particular, I was drawn back again to the question of valuation versus supply and demand. We are taught that value comes from some complicated mathematical analysis involving lognormal random walks and stochastic calculus. However, we all ought to know that value comes about by a more obscure and more interesting and usually ad hoc procedure, often involving little logic and certainly no maths, and sometimes quite a lot of emotion. (Think women and shoes.) All of this was seen at the Savoy auction.Yes, there were people tut-tutting at the amount some were willing to pay for an ashtray, but they weren’t those doing the buying. Those who bought the ashtrays probably had some doubts at the time, and also shortly afterwards, even this morning and maybe when they collect the ashtrays, but in the long run they’ll at least have a funny story about themselves. (The latter not so easy to assign a value to, and certainly not risk neutral!)

Near the end of the three days there was a boring patch with 50 Savoy double beds going under the hammer, one after another. To amuse myself and in the spirit of scientific curiosity, I wrote down the ‘time series’ of prices for these identical items. Now here was a room full of the same people, bidding for identical items with a known and limited supply, but even in this rather dull scenario the results were interesting, the plot of the times series is shown. Observations: the price did settle down to a value around £50, but that wasn’t exactly stable; absentee bids mostly caused dramatic increases in the price (I’m sure economists will get excited about ‘information’ at this point, but this was the least interesting observation); later absentee bids were very low, people perhaps hoping for drying up of demand(?); a few lucky or clever people even got the price down below the £50; individual bidders did not seem to show consistency in their bidding; losing bidders often took a break for a few lots before coming back in. None of this is other than perfectly obvious (and much already covered in auction theory, I hope) but in my experience you really have to keep reminding quants that they are human beings as well, and that they should draw inspiration from the mundane.


I bumped into Uri Geller at the auction. He had just successfully bid for…you guessed it, spoons! He’s a very nice gentleman, and very kindly gave a few of us a private display of spoon bending!