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I Won the Auction But Don't Want the Prize

Author

Listed:
  • Max H. Bazerman

    (Sloan School of Management, MIT)

  • William F. Samuelson

    (Boston University School of Management)

Abstract

The “winner's curse†occurs in competitive situations when a successful buyer finds that he or she has paid too much for a commodity of uncertain value. This study provides an experimental demonstration of the winner's curse, and identifies factors that affect the existence and magnitude of this bidding abnormality. In an auction setting, two factors are shown to affect the incidence and magnitude of the winner's curse: (1) the degree of uncertainty concerning the value of the item up for bid and (2) the number of competing bidders. Increasing either factor will increase the range of value estimates and bids, making it more likely that the winning bidder will overestimate the true value of the commodity and thus overbid.

Suggested Citation

  • Max H. Bazerman & William F. Samuelson, 1983. "I Won the Auction But Don't Want the Prize," Journal of Conflict Resolution, Peace Science Society (International), vol. 27(4), pages 618-634, December.
    • Handle: RePEc:sae:jocore:v:27:y:1983:i:4:p:618-634
    DOI: 10.1177/0022002783027004003
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    References listed on IDEAS

    as
    1. Michael H. Rothkopf, 1980. "On Multiplicative Bidding Strategies," Operations Research, INFORMS, vol. 28(3-part-i), pages 570-575, June.
    2. Robert L. Winkler & Daniel G. Brooks, 1980. "Competitive Bidding with Dependent Value Estimates," Operations Research, INFORMS, vol. 28(3-part-i), pages 603-613, June.
    3. Robert Wilson, 1977. "A Bidding Model of Perfect Competition," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 511-518.
    Full references (including those not matched with items on IDEAS)

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