Glossary
Winner's Curse
What is the winner's curse?
The winner's curse is a risk in common-value auctions, where bidders estimate an uncertain value that is substantially shared. The highest estimate is more likely to be too optimistic. Winning therefore tells the bidder something about their estimate.
How it works
A bid based only on your own estimate can miss the fact that winning selects an unusually high estimate. Kagel and Levin's 1986 laboratory study found that inexperienced bidders could bid too aggressively and lose money.
When the label fits
A high price or disappointing purchase is not automatically a winner's curse. When buyers value an item differently for personal reasons, other mechanisms may apply. Competition does not inevitably cause overpayment.
Why it matters
Ask what winning reveals. In a common-value setting, being the most optimistic bidder is information to account for before celebrating the win.