Value in Naïve Appraisal Advice
Alex
Tajirian
November 9, 2005
A number of domain name
forums offer “appraisal by peers” services.[1] Although such advice can
be characterized as naïve, it is useful. However, such appraisals
are not a substitute for professional appraisal reports.
On the surface, peer appraisal
advice sounds biased, as owners of domain names have an incentive
to over-state value, while potential buyers prefer a depressed
market. Moreover, appraisal postings tend to be few, even when
some forums provide incentives to members to post opinions. Under
such circumstances, making inferences about statistical characteristics
of naïve appraisal data – without making heuristic assumptions
about its probability distribution – is futile. Nevertheless,
there is experimental evidence that naïve advice is valuable and
tends to be followed.
Andrew Schotter has examined
experimental evidence and postulates that “subjects learn better
when they give advice, and that advice is therefore worth listening
to. [Moreover], a person receiving advice must contemplate whether
or not to follow it, and this process may also foster learning.”
Furthermore, Shcotter adds that “advice tends to be followed,
[and] changes behavior.”[2]
I look at the value evidence
in naïve appraisals as analogues to stock market analysts’ stock
picking. Although there isn’t a consistently superior stock picker,[3] analysts, in aggregate,
make the market more informationally efficient.
This efficiency,
however, does not imply that naïve advice is a substitute for
expert appraisal advice, especially for pricey domain names. Moreover,
an experts’ appraisal can provide a sold basis for negotiations
between buyers and sellers, as an expert appraisal’s report should
point out the sources of value creation and the associated risk.
For example, in the art market, which is more subjective than
domain names, the evidence suggests that “art experts provide
extremely accurate predictions of market prices.”[4]