Asked by Ashley Knight on Sep 24, 2024
Verified
This factor contributes to the winner's curse
A) your estimate of the value of the object was not the most optimistic
B) your bid was not the highest
C) there were not many other bidders you had to beat out
D) you did not shade your bid enough
Winner's Curse
A situation in which the winner of an auction ultimately overpays or incurs a loss because of overly optimistic valuation of the asset bid on.
Optimistic Estimate
A projection or forecast that assumes the most favorable conditions and outcomes for a given situation.
Bid Shading
A strategy where a bidder offers a lower price than what they are actually willing to pay, often used in auctions to acquire items at a lower price.
- Identify factors contributing to the winner's curse in auctions and strategies to mitigate it.
Verified Answer
SK
Santosh kumar Mauryaabout 6 hours ago
Final Answer :
D
Explanation :
The winner's curse occurs when a bidder wins an auction but realizes that they paid too much compared to the true value of the item. This can happen if the bidder "shades" their bid too high in order to ensure they win the auction. This can occur if the bidder overestimates the value of the item, but shading the bid too high can also happen if there are many other bidders or if the bidder simply wants to ensure they win the auction. However, out of the given options, shading the bid too high (D) is the most direct factor contributing to the winner's curse.
Learning Objectives
- Identify factors contributing to the winner's curse in auctions and strategies to mitigate it.