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Why the auction winner so often overpays: the winner's curse
Why does the winner of an auction so often go home poorer? When a prize is worth the same to everyone, each bidder only has a noisy estimate, and winning means…
Why people bid more than a dollar for a dollar: Shubik's escalation trap
Auction a dollar bill with one twist: the second-highest bidder pays their bid too. It sounds harmless, yet in 1971 economist Martin Shubik reported that…
The winner's curse: why whoever wins an auction has usually overpaid
In 1983, MBA students bid on jars of coins worth exactly $8. On average they underestimated the jars, guessing $5.13. Yet the winning bids averaged $10.01, so…