18 November 2022. At a recent auction of the Paul Allen Collection, Georges Seurat's work "Les Poseuses, Ensemble" fetched 149.2 million US dollars. The fact that the painting bears the addition "Petite version"(small version) may sound like the irony of auction fate. For a Cézanne, $137.8 million was paid, for a van Gogh $117.2 million, and so on. These cases are not isolated. Recently, $69 million was paid for a computer file, Beeples NFT "Every Days: the First 5000 Days", or an incredible $450 million for a Leonardo da Vinci, whose authenticity is questionable. Against the backdrop of such fluctuations, some may doubt the functionality and rationality of the art market.

Indeed, this is a market that cannot be described as ordinary, explains Dr Laura Johanna Noll: “For a buyer, for example, the marginal utility of each additionally acquired work of art does not generally decrease, as is the case with many other goods.” Moreover, the supply of artworks does not automatically increase with rising demand, for example in the case of a concluded body of work by an artist who has already passed away. Yet these reasons alone are not sufficient to fully explain the vastly differing prices. In her doctoral thesis, Dr Laura Johanna Noll used literature research, qualitative expert interviews and focus group discussions to investigate the many factors that influence auction prices. She asked experts from international auction houses what the value of art is based on and summarised their answers in thirteen value dimensions. According to her, the multidimensionality of the value of art confirms the complexity of the decision to bid that accompanies its acquisition. With Noll’s work as a basis, this process can be traced qualitatively. 

The individual value of art
On the one hand, there is a subjective factor, such as the individual motives for acquiring art: Some people buy it out of passion, to own it or to build a collection. Others acquire art as a symbol of power, for the purpose of self-expression or as a sign of social belonging, and others still are more interested in resale, in art as an investment. Nevertheless, as one interviewee put it: “Only a few people buy art purely as an investment. Most are driven to purchase by something inside of them, a desire to engage with something other than what they do every day.” In addition to subjective motives, the emotional or ideological connection to a work of art is also crucial. Hence, during an auction, the character traits of the bidder, such as rationality, willpower, the need for attention, play instinct or nerves, all play a role. 

The “true” value of art
Of course, in addition to subjective preferences, there is something like an artistic or cultural value of a work of art that influences the level of prices achieved. This undoubtedly includes the fame of the artist or the originality, rarity and chosen medium of the work. But trends in the art scene also influence prices, for example the artistic treatment of social themes such as equality and diversity. The striking thing is that the experts interviewed agree that not all works of high artistic quality fetch a high price. “One of the interviewees, for example, stressed that quality plays a role in the best-case scenario,” says Dr Laura Johanna Noll.

Collective dynamics
Among other things, this circumstance is due to the fact that, in addition to the factors mentioned so far, bidding decisions also depend significantly on collective dynamics in the art market. The type and intensity of competition, for example, or personal relationships and rivalry determine whether bidders stick to their predefined limit or bid beyond it. Competition for an artwork is interpreted as a signal of high value. It reduces rationality and increases the dominance of psychological and interpersonal aspects in decision-making behaviour. If an auction takes place physically in a hall, such dynamics are stronger (compared to online and on the phone) because the relationships are face-to-face. In addition, experienced auctioneers can heat up the atmosphere in situ, which can make a difference of about 3 to 5%, especially in the low and high price segments, according to the art experts interviewed. 

Diminished rationality
In summary, the subjectively perceived value of a work of art can be influenced by successful marketing on the part of the auction house – especially if there is already an art-historical value. The excess demand resulting from the increasing interest reduces the rationality in decision-making behaviour, leading to a higher willingness to pay and thus to a higher price. These kinds of purchase decisions are above all a snapshot: They reflect the subjective value of a work of art at the time it was sold. At another moment, the subjective decision about the value of a work of art may be completely different. The important thing to note is that these snapshots do not necessarily correspond to the “true” value of the art as assessed by art experts. Or as Dirk Boll, one of the presidents of Christie’s auction house, once put it: These days, “marketing has overtaken canonisation”.

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Image: Christie's Images 2022