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Winner's Curse

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Winner's curse
Problem faced by uninformed bidders. For example, in an initial public offering uninformed participants are likely to receive larger allotments of issues that informed participants know are overpriced.
Winner's Curse
In auctions, the tendency for the winning bid to exceed the intrinsic value of what is being offered. This trend was first noted among energy companies during auctions for bidding rights to drill in the Gulf of Mexico. It is thought that insufficient information and, perhaps more so, the emotional desire to win in the heat of an auction contribute to the winner's curse. See also: Behavioral economics.
winner's curse
The likelihood the winning bidder in an auction of several bidders will pay too high a price. From an investor's standpoint, the winner's curse implies the stockholders of the firm acquired in a merger will benefit at the expense of the stockholders of the acquiring firm when several potential acquirers are involved in the bidding.
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While the logic of the Winner's Curse is sound in theory, is it consistent with the reality of reinsurance markets?
The reinsurer's conundrum: in the quest for more business, reinsurers ... by Wenitsky, Russ / Best's Review
They build on Rock (1986), who interprets underpricing as a premium to uninformed investors for the winner's curse problem they face vis-a-vis informed investors, who observe the true firm value.
Underpricing and ex post value uncertainty by Falconieri, Sonia; Murphy, Albert; Weaver, Daniel / Financial Management
South African Tim Clark aced the ninth hole here Wednesday to win the Masters Par-3 Contest, taking onto his shoulders the winner's curse when it comes to taking the year's first major.
SAfrica's Clark takes on Masters curse by AFP / AFP American Edition
 
 
 
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