The winner's curse is a phenomenon akin to a Pyrrhic victory that occurs in common value auctions with incomplete information. In short, the winner's curse says that in such an auction, the winner will tend to overpay. The winner may overpay or be "cursed" in one of two ways: 1) the winning bid exceeds the value of the auctioned asset such that the winner is worse off in absolute terms; or 2) the value of the asset is less than the bidder anticipated, so the bidder may still have a net gain but will be worse off than anticipated. However, an actual overpayment will generally occur only if the winner fails to account for the winner's curse when bidding (an outcome that, according to the revenue equivalence theorem, need never occur). So despite its dire-sounding name, the winner's curse does not necessarily have ill effects in practice.
Read more about Winner's Curse: Related Uses, Explanation, Examples
Famous quotes containing the words winner and/or curse:
“I would be a winner because I was a loser! That’s right. I dream of failure every night of my life, and that’s my secret. To make it in this rat race you have to dream of failing every day. I mean, that is reality.”
—Donald Freed, U.S. screenwriter, and Arnold M. Stone. Robert Altman. Richard Nixon (Philip Baker Hall)
“Of all the nations in the world, the United States was built in nobody’s image. It was the land of the unexpected, of unbounded hope, of ideals, of quest for an unknown perfection. It is all the more unfitting that we should offer ourselves in images. And all the more fitting that the images which we make wittingly or unwittingly to sell America to the world should come back to haunt and curse us.”
—Daniel J. Boorstin (b. 1914)