The declining price anomaly: A study on Finnish art auctions
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School of Business |
Master's thesis
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Date
2025
Department
Major/Subject
Mcode
Degree programme
Economics
Language
en
Pages
67 + 1
Series
Abstract
This thesis studies a phenomenon called the declining price anomaly, and whether there is any evidence of such anomaly in a sample of Finnish art auctions. I start the thesis by examining prior studies in which the prices of auctioned items have been reported to systematically decline as the auction progresses; the observation has been deemed anomalous, as auction theory predicts that the prices should, on average, remain constant throughout the auction. The anomaly has been identified in auctions of both homogeneous and heterogeneous goods. I proceed by presenting explanations that have been suggested to explain the anomaly. Some explanations provide a theoretical framework in which rational and predictable behaviour causes the prices to decline, whereas other theories seek explanation from factors such as the way auctions are organized or non-optimal and irrational behaviour of the par- ticipants. I proceed by examining literature focusing on measuring the implicit prices of any measurable attributes of pieces of art. Such studies are carried out by utilizing the hedonic regression method, in which the art prices are explained with the measurable characteristics of the piece in question, such as the measurements and technique. These studies typically utilize data from auctions, as in such settings the prices and measurable attributes are easily observable. Despite various samples and settings, there are certain regularities in the findings: for example, the prices appear to be typically increasing with the size of the artwork. Finally, I conduct my own study in which I examine a sample of Finnish art auctions to study if there is any trace of the declining price anomaly. No trace of the anomaly is found; furthermore, it seems that the regularities typically found in earlier studies are not present in my sample.Description
Thesis advisor
Toivanen, OttoKeywords
auction, hedonic prices, declining price anomaly, art