Winner's Curse

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

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.

---

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.