Winner’s Curse

The winner’s curse is a tendency for the winning bid in an auction to exceed the intrinsic value or true worth of an item. The gap in auctioned vs. intrinsic value can typically be attributed to incomplete information, bidders, emotions, or a variety of other subjective factors that can influence bidders. In general, subjective factors usually create a value gap because the bidder faces a difficult time determining and rationalizing an item’s true intrinsic value. As a result, the largest overestimation of an item’s value ends up winning the auction.