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The Winner's Curse under Behavioral Institutions

Author

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  • Nadine Chalß

    (Friedrich-Schiller-University Jena, Germany)

Abstract

Empirically, social dilemma under information asymmetry are often much less pronounced than theory predicts. Traders experience a winner's curse and maintain efficiency enhancing exchange of commodities when theory predicts none. Especially under competition, cursed parties undergo severe losses and thereby fund social welfare. Hence, if one cures the winner's curse, one often decreases social welfare. Here, I test how market efficiency can be maintained without individual losses. In a competitive common value auction, parties sidestep both market inefficiency and a winner's curse by judging quality-by-price, and setting price-by-quality.

Suggested Citation

  • Nadine Chalß, 2011. "The Winner's Curse under Behavioral Institutions," Jena Economics Research Papers 2011-011, Friedrich-Schiller-University Jena.
    • Handle: RePEc:jrp:jrpwrp:2011-011
    as

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    File URL: https://oweb.b67.uni-jena.de/Papers/jerp2011/wp_2011_011.pdf
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    References listed on IDEAS

    as
    1. Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, vol. 95(1), pages 384-394, March.
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    More about this item

    Keywords

    imperfect information; common value auction; price-quality relation;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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