winner's curse


Also found in: Wikipedia.

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.

winner's curse

the possibility that the winning bidder in an AUCTION will pay too much for an ASSET since the highest bidder places a higher value on the asset then all other bidders. For example, the winning bidder in a TAKEOVER BID may pay too much for the assets and trading connections of the JOINT-STOCK COMPANY that he has bought, because the price that he has paid has been bid up by competing bidders.
References in periodicals archive ?
The Winner's Crime is the second volume in The Winner's Trilogy, which started with The Winner's Curse (2014).
This overpaying--when the winning bid in an auction exceeds the target's value--is known as the winner's curse, or hubris.
Avoid the winner's curse of high-cost recruiting: Faced with a fiercely competitive market, a broker-dealer can spend seven years' worth of profitability to attract and bring in the best recruit.
Whether there's a winner's curse or not, the last two Open winners - Els and Darren Clarke - went straight from the Scottish Open to the Claret Jug.
OLLY MURS is backing X Factor winner JAMES ARTHUR's desire to release his debut album as soon as possible to avoid succumbing to winner's curse.
Second, it can create a type of winner's curse where the referrer may feel they aren't being paid enough to refer your company and will feel a bit resentful about it.
NYSE shareholders would be the ultimate beneficiaries of the bidding war, with the acquirers being saddled with the winner's curse.
The winner's curse is said to characterize auctions in which winning bidders erroneously and systematically submit bids in excess of a capital good's "true common value.
Over the past few years a topic of discussion in the reinsurance industry has been something economists call the Winner's Curse.
Thaler's "The Winner's Curse," it would have known that such auctions invariably lead to irrational offers--and, indeed, the Rangers' bid (a 10-year contract for $252 million) overshot the next highest offer by about $100 million.
In controlled experiments, bidders at auction often fall prey to a winner's curse, failing to consider factors conducive to overbidding and thus earning disappointing or even negative returns.