Why the auction winner so often overpays: the winner's curse
30seconds
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 having the highest one: the most optimistic mistake in the room.
Run the auction room yourself: change the crowd size and the noise, and watch the average winner pay more than the prize is worth. Then add a "shave" to your bids and find the break-even point that cancels the curse.
Deep dive · 5 min
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