Winner’s Curse

Last Updated on 28. April 2023 by Martin Schuster

The winner of an auction typically has the highest valuation and willingness to pay for the item. However, all other participants obviously think that the item is less valuable. This might be a hint that the winner has an incorrect expectation about the value.

There are different remedies:

• If the valuation is highly individual, for example, for art, there is no correct or incorrect value.
• If the bidders have different use cases, customer bases, or access to funds (for example, if radio frequencies are auctioned), the valuation can be correct and reflect the different conditions.