winner's curse movie Auctions and the Winner's Curse

Winners curse is an economic theory that suggest auction bidders always over pay for their items. The winners curse is the economics of auctions. This video and it's article will give you a strategy for bidding on auctions and also ebay bidding tips and ebay bidding strategy in order to ensure you do not fall victim to the winners curse.

The Winner's Curse is an interesting if not alarming theory which says that the winner of an auction is bound to overpay. While there can be exceptions, this applies to most common value auctions which have an element of uncertainty, with incomplete information or some emotional input.

The basic idea of the winner's curse is easy to understand. In any given auction, all bidders will have a general idea of the value of an item, but this is unlikely to be the same for every bidder. It can be said that the true value of the item is the average or the median price, and some bidders will undervalue it and others overvalue it.

Of course, in a contested auction, the person who places the highest valuation on the item will be the winner. The auction is always won by the person who over values the item. Thus it can be said that if you win an auction, this is bad news for you as you must have paid too much!

There are some examples of people winning auctions, say on eBay, where they actually pay less than the true value. If this is the case, however, either it is because the auction has not been well attended, because it is for some esoteric item, or because only one of the bidders really knew the true value of a collectible item, say.

It seems inevitable that if the auction has a competitive bid with a degree of subjective assessment of the value, an amount of uncertainty, then the winner may rightly feel disappointed in his purchase.

One way which has been suggested to get around the problem of paying too much for an auction item is to use "shaded bids". Bid shading comprises setting a maximum bid less than what you believe to be the true value. If you win with a shaded bid, then by definition you will be happy with your purchase.

Another reason for bid shading is that the purpose of the auction, from the buyer's point of view, may be to gain a financial advantage. In other words, the buyer would like to purchase the item on offer at less than its true value in order to improve his overall financial position. This is often the intent of people who frequent auction houses.

So even if the buyer succeeds in his bid at the true value of the item, he gains nothing by winning the auction. Whether he possesses the item or the money, it is of the same value to him. The only way that he can improve his position is by purchasing the auction item at less than its true value, whether to keep or for resale.

This is a second reason that bid shading would be recommended to anyone who makes a practice of attending auctions. By shading your bid, or ensuring that you only offer up to an amount less than you believe the item is worth, you will not have to suffer disappointment if you win the auction.

winner's curse movie Auctions and the Winner's Curse
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