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)
“There is nothing worse than an idle hour, with no occupation offering. People who have many such hours are simply animals waiting docilely for death. We all come to that state soon or late. It is the curse of senility.”
—H.L. (Henry Lewis)