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:
“In tennis, at the end of the day you’re a winner or a loser. You know exactly where you stand.... I don’t need that anymore. I don’t need my happiness, my well-being, to be based on winning and losing.”
—Chris Evert (b. 1954)
“As Labor is the common burthen of our race, so the effort of some to shift their share of the burthen on to the shoulders of others, is the great, durable, curse of the race.”
—Abraham Lincoln (1809–1865)