The Winner's Curse Literature Review

This page is referenced in:

• VC Acquisition Project
• Winner's Curse

This page provides links to papers related to building models of the Winner's Curse.

Literature

@article{thaler1988anomalies,
  title={Anomalies: The winner's curse},
  author={Thaler, R.H.},
  journal={The Journal of Economic Perspectives},
  volume={2},
  number={1},
  pages={191--202},
  year={1988},
  publisher={JSTOR},
  abstract={Economics is distinguished from other social sciences by the belief that most (all?) behavior can be explained by assuming that agents have stable, well-defined preferences and make rational choices consistent with those preferences in markets that (eventually) clear. An empirical result qualifies as an anomaly if it is difficult to "rationalize," or if implausible assumptions are necessary to explain it within the paradigm. This colulmn will present a series of such anomalies. Of course, "difficult" and "implausible" are judgments, and others might disagree with my assessment. Therefore, I invite readers to submit brief explanations (within the paradigm or otherwise) for any of the anomalies I report. To be considered for publication, however, proposed explanations must be falsifiable, at least in principle. Future topics for this column will come from as many fields of empirical economics as possible.},
  filename={Thaler (1988) - Anomalies The winners curse}
}

@article{crawford2007level,
  title={Level-k Auctions: Can a Nonequilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?},
  author={Crawford, V.P. and Iriberri, N.},
  journal={Econometrica},
  volume={75},
  number={6},
  pages={1721--1770},
  year={2007},
  publisher={Wiley Online Library},
  abstract={This paper proposes a structural nonequilibrium model of initial responses to incomplete-informationg ames based on "level-k" thinking, which describes behavior in many experiments with complete-information games. We derive the model's implications in first- and second-price auctions with general information structures, compare them to equilibrium and Eyster and Rabin's( 2005) "cursede quilibrium," and evaluate the model's potential to explain nonequilibrium bidding in auction experiments. The level-k model generalizes many insights from equilibrium auction theory. It allows a unified explanation of the winner's curse in common-value auctions and overbidding in those independent-private-value auctions without the uniform value distributions used in most experiments.},
  filename={Crawford Iriberri (2007) - Level k Auctions}
}

@article{eyster2005cursed,
  title={Cursed equilibrium},
  author={Eyster, E. and Rabin, M.},
  journal={Econometrica},
  volume={73},
  number={5},
  pages={1623--1672},
  year={2005},
  publisher={Wiley Online Library},
  abstract={There is evidence that people do not fully take into account how other people's actions depend on these other people's information. This paper defines and applies a new equilibrium concept in games with private information, cursed equilibrium, which assumes that each player correctly predicts the distribution of other players' actions, but underestimates the degree to which these actions are correlated with other players' information. We apply the concept to common-values auctions, where cursed equilibrium captures the widely observed phenomenon of the winner's curse, and to bilateral trade, where cursedness predicts trade in adverse-selections settings for which conventional analysis predicts no trade. We also apply cursed equilibrium to voting and signalling models. We test a single-parameter variant of our model that embeds Bayesian Nash equilibrium as a special case and find that parameter values that correspond to cursedness fit a broad range of experimental datasets better than the parameter value that corresponds to Bayesian Nash equilibrium.},
  filename={Eyster Rabin (2005) - Cursed equilibrium}
}