Asked by Amerie Marie on Sep 24, 2024
Verified
Experiencing the winner's curse in a common-value auction means
A) You lost money in the auction
B) You bid too low
C) Your estimate of the value of the good being auctioned was too optimistic
D) Your estimate of the value of the good being auctioned was too pessimistic
Winner's Curse
A phenomenon that occurs in auctions where the winning bidder pays more than what the item is actually worth, usually because of incomplete information or misjudgment.
Common-value Auction
an auction format where the item for sale is of the same value to all bidders, but the bidders have different information about the item's actual value.
Too Optimistic
Pertains to a situation or mindset where expectations are unrealistically positive, potentially overlooking possible risks or challenges.
- Analyze the concept of the winner's curse and its implications in common-value auctions.
Verified Answer
MU
Mussa Ukasha5 days ago
Final Answer :
C
Explanation :
The winner's curse occurs when the winning bid in a common-value auction exceeds the true value of the item being auctioned. This happens because all bidders have imperfect information about the true value, and the winner is the one who overestimates it the most. Therefore, choice C is the correct answer as it means the bidder's estimate of the value of the good being auctioned was too optimistic.
Learning Objectives
- Analyze the concept of the winner's curse and its implications in common-value auctions.