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<p>[QUOTE=&quot;kirispupis, post: 8165196, member: 118780&quot;]I believe what I&#039;m discussing is different from arbitrage. For example, in the real estate world, flipping is a form of arbitrage. I&#039;ve flipped homes before, and it involves calculations of the work involved and the profit once it&#039;s fixed up. Generally, when a flipper goes against someone who plans to live in the property himself/herself, the flipper loses (unless the flipper is a moron).</p><p><br /></p><p>Lets take an object different from real estate or coins: an apple. Of course there are different types of apples with different prices, so I&#039;ll be more specific with an inorganic granny smith apple. On a table are a bunch of these apples, and you&#039;re in a room with others bidding on them. Just for fairness, these aren&#039;t the only apples in existence, and you&#039;re perfectly capable of walking out of the store and buying any other apple or food item at any normal grocery store. Also, the money is going to pay for an expansion to a mansion that Jeff Bezos rarely uses. Not a cent will go to charity.</p><p><br /></p><p>Now, you know roughly what apples cost at the grocery store. You&#039;re hungry. Would you bid $1 for an apple? Maybe, or you might be like my mother-in-law who buys carrots at one store and apples at another based on where one&#039;s cheaper. Would you bid $5? Maybe $5 isn&#039;t much for you and you really don&#039;t care. You could also just bid on another apple.</p><p><br /></p><p>However, lets say someone walks up and places a $1000 bid on one particular apple. Would you bid $1100, or would you just buy some other apple? </p><p><br /></p><p>I believe the overwhelming majority of us wouldn&#039;t bid on that apple. Why? Because our price justification for the apple is based on our knowledge of how much apples are worth. That apple may look shinier than the others, but it&#039;s not any tastier, nor are you going to be able to resell it for a profit.</p><p><br /></p><p>The money sniffer, though, <i>will</i> bid $1100, and more if necessary. Why? Because his price justification is the fact that someone just stated a willingness to pay $1000. The thinking is that there must be someone else who will pay more. In other words, the entire price calculation has nothing to do with how much he <i>wants</i> the item, nor in any past apple sales, but on what someone else has valued it.[/QUOTE]</p><p><br /></p>

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