Winner's Curse

The winner's curse is the unfortunate consequence of an auction in which the winning offer for an item was bid so much higher than the item's worth that the winner cannot recover enough value to justify the price paid.

A free market can function like an auction—sellers offer their goods and buyers offer their bids of the prices they are willing to pay for those goods. Bidders, though they may be sensitive to price and prefer to pay the lowest amount possible, “win” the auction when a seller accepts the highest price offered. In a free market for scarce goods, as in an auction, buyers may willingly increase their bid to maximize the likelihood of purchasing, or winning, the goods they want. One consequence of ...

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