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Winner’s Curse       Akhtar Shahi Qureshi       Anurag Arora       Divya       Nishant Goyal
He is the richest who is contentwith the least, for content is the        wealth of nature.                        ~Socrat...
WINNERS’         CURSE          How?How can a win possibly be a curse?                                     3
A tendency for the winning bid in an auction to exceed the intrinsic value of the item purchased.Because of incomplete inf...
Popular Example US federal government conducted an auction ofpotentially valuable oil leases in the Gulf of Mexico.  Compa...
Decision Making in spectrum        allocation policyBetween 2004 and 2009 when thespectrum allocations were through afixed...
Indian Telecom Since 2010…3G spectrum Auction in 2010: In 3G auctions, the operators suffering from Winner’s  Curse overbi...
Between 2004 and 2009 when the spectrum   allocations were through a fixed-price  policy, receiving calls became free and ...
Winner’s curse does NOT affectevery auction. BATMAN’s collector item on E-bay will be worth  10$ to one person and 100$ t...
In case of IPOsInvestors have different informationabout the fair value of the shares.Uninformed investors subscribe toeve...
Bid Strategy as devised by Capen, Clapp and Campbellin their researchEvidence was found by CCC that one should bid lower i...
ConclusionBehavioral analysis wrt Winner’s CurseIt is true that one should be aware of this fact when entering a          ...
So What’s the bottom line ???  If you want to be an entrepreneur who wants to be successful at trying to bid on  projects ...
Thank You Queries please?                  14
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Winners' Curse in Auctions.

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Winners' Curse in Auctions.

  1. 1. Winner’s Curse Akhtar Shahi Qureshi Anurag Arora Divya Nishant Goyal
  2. 2. He is the richest who is contentwith the least, for content is the wealth of nature. ~Socrates 2
  3. 3. WINNERS’ CURSE How?How can a win possibly be a curse? 3
  4. 4. A tendency for the winning bid in an auction to exceed the intrinsic value of the item purchased.Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the items intrinsic value. As a result, the largest overestimation of an items value ends up winning the auction.Conditions generally ending in Winner’s Curse:  Common value auctions Incomplete information 4
  5. 5. Popular Example US federal government conducted an auction ofpotentially valuable oil leases in the Gulf of Mexico. Companies had no experience bidding on such leases, but they did have access to standard geological methods for estimating their value. Inhindsight, we see that the oil leases fetched prices that were too high.In fact, the returns from a savings account wouldhave been much higher than the winning bidders, who paid millions of dollars for their leases. 5
  6. 6. Decision Making in spectrum allocation policyBetween 2004 and 2009 when thespectrum allocations were through afixed-price policy. Then, 2G scam happened. 3G spectrum allocation was, hence, through Auctions. 6
  7. 7. Indian Telecom Since 2010…3G spectrum Auction in 2010: In 3G auctions, the operators suffering from Winner’s Curse overbid the actual price of spectrum and now reviving their costs from market. For the first time in the country’s 17-year mobile telecom history, call rates have increased. The mobile voice bill for an average consumer is set to rise by 20 per cent and data charges by 20 times! 7
  8. 8. Between 2004 and 2009 when the spectrum allocations were through a fixed-price policy, receiving calls became free and charges dropped a further 90 percent, leading to another 600 million people becoming mobile-enabled. 8
  9. 9. Winner’s curse does NOT affectevery auction. BATMAN’s collector item on E-bay will be worth 10$ to one person and 100$ to another. Actual value might be pretty lower. Due to pseudo endowment effect, private value is attached to it. And hence, it is not the example of common value auction. If buyer’s estimate of an asset’s value isaffected only by his own perceptions andNOT by perception of others, he would be willing to pay up to his valuation. 9
  10. 10. In case of IPOsInvestors have different informationabout the fair value of the shares.Uninformed investors subscribe toevery IPO, informed investors only buynew shares if the issue price if less thanthe fair value. This causes a Winner’scurse for the uninformed investors. 10
  11. 11. Bid Strategy as devised by Capen, Clapp and Campbellin their researchEvidence was found by CCC that one should bid lower inauctions to avoid loosing too much money. Three basicguidelines are given for a better bid strategy:1. The less information one has compared with what the opponents have, the lower one should bid.2. The more uncertain one is about the value estimate, the lower one should bid.3. The more bidders (above three) that show up on a given parcel, the lower one should bid. 11
  12. 12. ConclusionBehavioral analysis wrt Winner’s CurseIt is true that one should be aware of this fact when entering a bidding situation. But it is probably also true that some of your fellow bidders will not know of this phenomenon. What should you do? Lowering your bid is what seems reasonable, but… if you are the only one doing so, then chances of having a winning bid will be next to nil. You might even consider not bidding at all, but this is not satisfactory unless you want to quit your business.What you can do is share your knowledge. The more informedplayers in a bidding game there are, the less is the effect of the Winners Curse. If you can convince the other players to lower their bids as well, then the bidding game will be profitable again. 12
  13. 13. So What’s the bottom line ??? If you want to be an entrepreneur who wants to be successful at trying to bid on projects large and small, try to keep thewinner’s curse in your head and the number of people in the room while deciding yournext bid. With experience and a sight for thewinner’s curse, you’ll become a great bidder. 13
  14. 14. Thank You Queries please? 14

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