On Small Sample Anomalies

Hello everyone! Breaking from my usual Modern Times series, I wanted to take some time today to address and discuss a very relevant phenomenon one should be wary of when speculating on single cards, regardless of the format.

That phenomenon is, of course, acute price spikes in single cards for no obvious reason. For speculators and players, such puzzling price movements can lead one to make ill-placed and ill-timed financial decisions and purchases. Knowing why these price movements occur, and how to recognize them, can go a long way in protecting yourself from making misinformed purchasing decisions.

A Twist on Misperceptions Theory

In economics, there’s a theory known as the misperceptions theory, which is a phenomenon that arises when producers observe a fall in the overall price level, and mistake it as a fall in the demand for their product. This resulting misperception may cause producers to erroneously reduce the quantity supplied of their goods or services when, in reality, demand hasn’t changed.

If we were to apply a twist on this concept to some of the anomalous price movements we’ve seen in cards like Ajani, Mentor of Heroes and Lyra Dawnbringer over the past week or so, we arrive at an application of misperceptions theory to the demand-side of the market for single MTG cards.

Specifically, when players observe a price spike in a given card, they might mistake the card’s new price as reflective of the overall trend in that card’s price movements. As a result, for fear that the card might continue to rise in price, players may make a misinformed financial decision and overpay for cards whose true long-run prices are inaccurately reflected in acute short-run deviations.

The Disparity Between Market and Average Prices

While I enjoy bringing economic theory into MTG finance, it’s incredibly important to also address how we can identify these short-run price spikes from long-run average prices. Thankfully, MTGStocks and several other MTG finance tools do well to distinguish between market prices and average prices. Market prices reflect how much a card has recently sold for while average prices reflect the average listing (or asking price) for a given card. In a perfect world, the prices people are paying for their single cards directly (or closely) correspond to the asking prices. This would be a market in perfect equilibrium. Unfortunately, this is seldom the case.

However, even for cards like Ajani, Mentor of Heroes, we can see that the market and average prices are within a couple bucks for most of the past five months or so, but within the past couple weeks have jumped very briefly to a rough $20 disparity. This disparity is, of course, manifested in the market price.

So what gives? Are people paying $20 dollars above the listing price for this quaint planeswalker? Is there something we don’t know? Are listing prices just really sluggish to adjust to actual demand? These are all questions one might ask when confronted with such a mysterious price movement for an otherwise innocuous card.

How Do These Anomalies Arise?

The sources of these skewed and acute price movements can happen for a number of reasons:

Market manipulation: while uncommon with non-Reserved List cards, it is possible that such price spikes can occur simply because a seller lists a specific card well above a listed median on one seller’s account and then uses another buyer’s account to purchase the card at its ludicrous asking price. The end result is an individual sells a card to themselves, but eBay or a similar commercial aggregator records the sale at its “fake” price. Sites like MTGStocks or similar, which scrape price and sales movements from eBay, TCGPlayer, or similar platforms will pick up these extreme points alongside more normal sales transactions. If the sales are fewer and farther between than the amount of listings and the listing prices themselves, then a large disparity is generated between our listed and average prices.

Large-scale sales: in some cases, sites like TCGPlayer or eBay, which keep public logs of past sales of single cards and product, can mistakenly express the sales prices of unique cards as that of the price of a larger sale it was included in. For instance, if one were to go on TCGPlayer and buy $100 worth of cards across five unique cards, it is possible that the $100 sale can be miscoded or reflected in the unit price of one of the five cards in the “basket,” rather than as the sum total of all five cards. These errors, while exceedingly rare, can happen, and occasionally mislead prospective buyers.

Human error: while most savvy MTG speculators do their homework, not all buyers behave the same. Less experienced MTG speculators or novice players may not know any better with regards to card availability and the true prices of some of the cards they buy. It’s safe to say, we’ve all made purchases we regret simply because we didn’t have a good feel for the market or lacked full information about a given card’s value or utility. Because of hiccups like this that all new buyers make at some point, it’s not impossible to observe a sale here or there that is for the rare listing well above the market price, especially for cards that don’t sell at a high frequency.

Concluding Remarks

We’ve talked extensively about these one-off price spikes and the implications they carry for the prospective buyer or speculator, but what can we do to protect ourselves from falling victim to these price disparities? Simply put, the easiest way to protect yourself as a buyer is to do your due diligence. Thankfully, eBay, TCGPlayer, and other large marketplaces for single cards provide publicly available data on recent sales of single cards, including the sales price itself. Checking the sales history is a form of data validation. If a high market price seems out of place, double check it against recent sales. If recent sales prices fall considerably short of the market price itself, then it’s probably worth waiting for the market to adjust, or find an alternative storefront to procure your single from that’s not expressing erroneous prices.

Secondly, look at the quantity of sales as well as the prices of recent sales. A large reason price spikes like that of Lyra Dawnbringer or Ajani, Mentor of Heroes arise are from biases in small sample sizes. If Ajani, for example, only sells one copy every two weeks here and there on TCGPlayer at $7, and then suddenly sells twice in one week at $20, take those sales numbers with a grain of salt. If cards aren’t moving in large quantities or at high sales frequencies, then it’s likely the demand is low to begin with, making any out-of-place sale at a higher-than-average price outliers in-and-of themselves.

Overall, the secondary market for single cards is difficult to navigate, even for experienced buyers. These small-sample anomalies and noisy price spikes make informational clarity about the real price of some single cards very difficult to discern. But fret not! With some time, and patience, it’s usually straightforward to parse out these random price spikes from the true value of any given card.