What's even more fun is that if the transaction ends up with the desired end point, a house, it's quite likely that all the intermediate goods will become much more valuable because, collected together, they would make an excellent exhibit in an economics program at a distinguished university or museum. The participants may realize that and calculate the speculative value into their barter offers. The current owners of that paperclip should certainly frame and hold onto it.

....also of value will be the list of people who appear to be willing to make bad swaps. Surely there can't be many of those about?

But who made the paperclip?

zmollusc - Where was the bad trade? Take the first one, for example.

For the price of a wooden fish pen you already have and aren't using much, you get 5 seconds of fame, a few laughs, and the spectacle of a lunatic willing to travel many miles to trade his paperclip for your fish pen. You also get a virtual lottery ticket (in the form of said paperclip) that might be worth real money later.

The guy running the site is providing a good (the paperclip or subsequent item he's traded up to) as well as a service in these trades. If the value of the good received plus the service exceeds your personal valuation of what you're getting, why not swap?