Monday, February 20, 2006

The Winner's curse

Savvy bidders will avoid the winner's curse by bid shading, or placing a bid that is below what they believe the good is worth. This may make it less likely that the bidder will win the auction, but it also protects them from overpaying in the cases where they do win. A savvy bidder knows that they don't want to win if it means they will pay more than a good is worth.

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