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Doing my best to summarize what I got from this article: 1. In an auction, is possible to over-bid on a thing 2. If you over-bid on a thing and you win, that'

• vikingerik 3y ago
  You're not missing anything. This article is junk and says nothing that we don't already know about the winner's curse (or you can easily look up anywhere.) It's only a vehicle to sell reports via that popup.
  • pessimizer 3y ago
    And now you can look it up in this article, written in different words and from the perspective of the individual participating in an auction. That's not junk.
  • Zetice 3y ago
    We? I didn’t know this had a name or was formally recognized, and at best I had an intuition for it rather than an explicit understanding of what was going on. This article solidified the concept for me, and I’m grateful. Why so cynical?
    • samtho 3y ago
      > This article solidified the concept for me, and I’m grateful. Why so cynical? If it were not posted on HN you wouldn’t have seen it, I’m guessing. As for the article itself, it is a surface-level, paraphrased encyclopedia entry on this observation. It could have provided more value with more than just a jar of coins as an anecdote, perhaps showing how this can apply in face-to-face negotiations. I think it’s fair to be skeptical of intentions because of low-effort junk out there that exists solely as a lead gen.
  • tomcam 3y ago
    OTOH I can now use “Winner’s Curse” as the name of my direct to video screenplay which will appear on Netflix starring that guy from the really good show a couple years back, and maybe with a Bruce Willis cameo
• andsoitis 3y ago
  It not only describes the issue it also provides some tools for decision making such as: a) widening one’s aperture of what is an auction: Auctions pervade our world, from mergers-and-acquisitions deals and procurement auctions to eBay. b) ideas to avoid the trap: - Analyze whether the asset has a common value element. A common value asset, like a jar of coins, has equal value to all bidders. If so, bid with caution. - Assess your capabilities and compare them with those of other bidders. - Before placing each bid, pause to consider how you would feel if you won the auction.
• tommiegannert 3y ago
  Only bid if you have already sold the thing to someone not in the auction. :) https://en.wikipedia.org/wiki/Winner%27s_curse https://en.wikipedia.org/wiki/Winner%27s_curse If you have alternatives to participating in this auction, perhaps you should abstain. Also related to BATNA: https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiated_agreement https://en.wikipedia.org/wiki/Best_alternative_to_a_negotiat...
  • HWR_14 3y ago
    That's only true if items with a defined but unknown at the time of bidding. A piece of art doesn't suffer from the winners curse if you are buying it to enjoy.
    • pessimizer 3y ago
      Yes it does. There could be another piece of art that you would "enjoy" equally, but pay less for. If no other piece of art will do, then you yourself are equivalent to the pocket buyer. edit: if you're using "enjoy" to mean "have a private value rather than a shared one," a pocket buyer is a private value. If, instead, your level of enjoyment of the item is around the same level as the rest of the bidders, then there's no reason why the Winner's Curse wouldn't apply.
  • tomjakubowski 3y ago
    > If you have alternatives to participating in this auction, perhaps you should abstain. totally off-topic I know -- it's a great answer to so many dull thought experiments too. Like this one that was going around Twitter recently: Everyone responding to this poll chooses between a blue pill or red pill. - if > 50% of ppl choose blue pill, everyone lives - if not, red pills live and blue pills die Just walk away! It's so easy!
• rocqua 3y ago
  A core point is the line "Analyze whether the asset has a common value element. A common value asset, like a jar of coins, has equal value to all bidders. If so, bid with caution." In auctions where the asset does not have equal value to all bidders, the winners curse is less likely to apply. Because if you guess the value of the object higher than all others, that can happen because it is fundamentally worth more to you, rather than because you had the most over-estimation.
  • HWR_14 3y ago
    Which is why "jar of coins" is a bad example. To a collector, a jar of coins may be worth more than face value, depending on what is in there.
• yccs27 3y ago
  Intuitively, you might think "I'll just bid a few cents less than what the thing is worth to me, then I'll get a fair deal". However: 1. You likely don't know the value exactly, so you might overbid (or underbid) 2. If you overbid, you will probably get the thing and lose money 3. If you underbid, you are less likely to be awarded the thing, so on average the gains (from getting it below value) are lower than the losses (from overpaying). 4. The Big Insight: To still get a good deal on your average auction win, you need to adjust your bid downwards to account for your imperfect knowledge.
  • crdrost 3y ago
    Yes. It's not a terribly interesting article but I would describe it from an external perspective as, "People bid based on a sort of mean value: they don't know how much this thing is worth to them, so they make an uncertain guess, that guess has a mean. "But, that guess also has a standard deviation. And if you have 100 identical people doing a one-time closed bid on the thing, they all have identical mean valuations but the bid that will win will probably be 2-3 standard deviations over the mean. In these situations, the more wrong you are, the more likely you are to win, and the less you will like what you win. This is the winner's curse. "You can avoid this by being cognizant of your status as one of the pool of 'identical people', how many people are similar to you, and tempering your bids downward in relation to that. A jar full of money has a similar value to everyone who is in the audience -- this creates the dangerous condition! A unique statement piece from an otherwise unremarkable artist, is going to attract some interested parties and some revulsion: so if you dig it, you are probably in the minority and don't need to worry so much about the winner's curse."
  • User23 3y ago
    Overbidding has guaranteed downside. Underbidding has non-guaranteed upside. It’s pretty clear that if you’re playing an iterated game then you always underbid. Of course it’s a different story if it’s a unique item that you really want.
    • deleted 3y ago
      [deleted]
• SkyPuncher 3y ago
  > 4. The Big Insight: before you bid, stop to think about whether you're about to bid higher than you value what you're bidding on. How do you define value? How does it consider fungible factors? ---- My wife and I "overbid" on our house. We have absolutely no idea how much we "overpaid". Could be 0%, could be 10%, could be -10%. If we did it again, we'd take the exact same approach. Winning that bid had little to do with the actual value of that house, other than knowing where to put a value on the bid. It solved a major problem for us - we need to move to a new city where housing in in extremely short supply. Putting that bid in and winning meant saving weeks/months of effort looking, touring, driving out of state, putting bids in, holding our breath, etc, etc. In an auction, the winner will always give an unnecessary concession (whether that's excess cash or some other contractual term). That's simply the nature of competition; especially with asymmetrical knowledge.
  • anamexis 3y ago
    It seems like you're using a different definition of overbid here. You didn't bid higher than what you value the house at, presumably, otherwise you wouldn't do it again.
  • robotresearcher 3y ago
    The article clearly says that the phenomenon applies only to auctions where the final value is approximately the same to everyone. You describe a situation where a quick purchase is very valuable to you, so getting the sale is worth a higher bid to you than to someone who could take their time getting a good price, such as an investment buyer. So the phenomenon is much weaker or irrelevant in your case because all buyers are not estimating the same absolute value to them.
  • WalterBright 3y ago
    > How do you define value? The buyer defines it as he sees fit, so does the seller. No sale happens unless they both agree on the value.
• bawolff 3y ago
  > What does this have to do with negotiation? You can negotiate for a contract job such that it costs you more to do the job than your negotiated price, or otherwise isn't worth it. I agree its not the most insightful article
• richdougherty 3y ago
  I haven't read the article, but "The Winner's Curse" is an economics concept I'm familiar with. Basically, The Big Insight is that every bidder has an estimate of the value of something, and the true value might differ from these estimates. If you're the winner of a transaction then you have likely overestimated the value. Since you had the highest estimate, you probably overestimated. But it only arises in certain situations. In practice, it depends on whether all bidders have the same information. If you have more information your estimate might be correct. It also depends on whether the item has different value to different bidders, as it might truly be more valuable to the winner. https://en.wikipedia.org/wiki/Winner%27s_curse https://en.wikipedia.org/wiki/Winner%27s_curse > Savvy bidders will avoid the winner's curse by bid shading, or placing a bid that is below their ex ante estimation of the value of the item for sale—but equal to their ex post belief about the value of the item, given that they win the auction. The key point is that winning the auction is bad news about the value of the item for the winner. It means that he or she was the most optimistic and, if bidders are correct in their estimations on average, that too much was paid. Therefore savvy bidders revise their ex ante estimations downwards to take account of this effect.
  • glitchc 3y ago
    It sounds like they don't win anything either. Ultimately the expected value of the bid devolves into a binary outcome: win or loss. This strategy seems to guarantee a loss as the optimal bid is never the maximum bid, ergo it will never result in a win. What's the point? Might as well not bid at all to achieve the same outcome.
• travisjungroth 3y ago
  The article and all the comments I’ve seen really miss the essence of winner’s curse. Let’s say there’s an auction for a gold bar. Everyone has to use their own scale. Our scales don’t have bias, that’s easy to detect and fix. But, they do have noise. Let’s say +/-1%, all equally likely. There are 50 people at the auction. The bar is 100g. The two highest readings are going to probably be near 101g, and those two are going to bid each other up. The winner will have overpaid. Simulating this, the mean second highest estimate will be 100.96. The essence of this is that valuations have a randomness to them. It doesn’t have to be a scale. It could be a model or just the ideas of a person. Because of the ways auctions work, the highest valuation gets chosen. So, the noise in your valuations doesn’t cancel out. The winner is cursed by overpaying. You can correct for this. There are formulas. But there are also things you can use intuitively. This is only for cases where you care about the value of something, like you may resell it. Bidding on a taxi to make it to a wedding doesn’t apply. Never bid what you think is a fair price, like you might in an open market. You need to be getting discount. The more bidders and the noisier the valuation, the higher the discount. If you’re bidding on something where it could be worth 1/2 or 2x easily and there are 100 others, you need to think you’re getting a screaming deal. Cause the most likely reason you’re the higher bidder is you were unluckily high in your valuation. Again, if you have a reason to bid high (that was my dad’s corvette!) this doesn’t apply.