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Unformatted text preview: Jennifer Edwards Intermediate Microeconomics Prof Alpert March 14, 2010 The Winners Curse The Winners Curse is defined as a pattern in which a person who is optimistic about the amount of there bid. The winners curse is a theory made up by Richard Thaler, which is the author of The Winners Curse, and it refers to a selection that arises when the bidder wins but value estimate are high rather than low. This happens because of miscalculations on a product sold at a higher cost of what it is really worth. The winner may overpay or be cursed in two ways where the winning bid go over the value of the assets.(Thaler, wikipedia, 1988) The winner is worse off in absolute terms because the value of the product is less than the bidder would have thought, so the bidder may still have a overall growth, but they will be worse off than they expected. (Thaler, wikipedia, 1988) However, the overpayment will occur when the winner fails to account for the winner's curse when bidding.(Thaler, wikipedia, 1988) The Winners Curse can e used in different scenarios in economic theory such as: auctions, cartel behaviors, jobs, discount rates, fair prices and loss aversions. Mr. Thaler uses his book to break down to us the economic theory of the winners curse but using economics anomalies so we could understand the theory of economics. An anomaly is a fact or observation that is inconsistent with the theory.(Thaler, The Winner's Curse - Paradoxes and Anomalies of Economic Life, 1992) Mr. Thaler talks about the economic theory and the assumption about behavior in which they are used in firms, financial markets and consumer choices....
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This note was uploaded on 09/21/2011 for the course ACCT 101 taught by Professor Hollies during the Fall '11 term at University of Bridgeport.
- Fall '11