SCL indus

Question 1

identify a phenomenon known as the winner’s curse, feature of common value auctions

Answer 1

Capen et al (1971)

Question 2

the tendency of a winning bid to be in excess of the real value of the asset sold in the auction

Answer 2

Sandy et al., (2004, p. 309)

Question 3

Coin jar, • Chances are very high that the following results will be obtained: (1) the average bid will be significantly less than the value of the coins (bidders are risk averse); (2) the winning bid will exceed the value of the jar.

Answer 3

Thaler (1988)

Question 4

The winner’s curse cannot occur if all the bidders are rational

Answer 4

Cox and Isaac (1984)

Question 5

“If one wins a tract against two or three others he may feel fine about his good fortune. But how should he feel if he won against 50 others?”

Answer 5

Capan et al (1971)

Question 6

However, in the presence of a winner’s curse, this same public information generates lower average winning bids and reduced seller’s revenues

Answer 6

Kagan and Levine (1986)

Question 7

stresses the asymmetric information across bidders, which leads to an extreme form of the winner‟s curse in which any positive bid yields an expected financial loss to the bidder.

Answer 7

Thaler (1994)

Question 8

Jar of coins conducted under experimental conditions

Answer 8

Bazerman and Samuelson (1983)

Question 9

What happened with the estimates of the jar

Answer 9

• The estimates of the actual values turned out to be biased downward. The mean estimate of the value of the jars was $5.13, well below the true value of $8.00. This bias, plus risk aversion, would tend to work against observing a winner’s curse. Nevertheless, the mean winning bid was $10.01, producing an average loss to the winning bidder of $2.01

Question 10

which used first price auctions, the results varied with group size. In the small groups, there were typically profits which were, on average, 65.1 percent of the RNNE profits. However, in the large groups, losses of $.88 per auction period were observed, in contrast to the $4.68 profit predicted by the RNNE.

Answer 10

Kagan and Levine (1986)

Question 11

have investigated this hypothesis by giving the “buy-a-firm” problem to 69 Northwestern M.B.A. students via a microcomputer There was no sign of any learning among the others; in fact the average bid drifted up over the last few trials. It may be possible to learn to avoid the winner’s curse in this problem, but the learning is neither easy nor fast

Answer 11

• Weiner et al (1987)

Question 12

note a consistent tendency for the winning oil firms to have overestimated the true values of the rights they were successful in securing, in gulf of Mexico in 1950s and 1960s

Answer 12

Capen et al (1971)

Question 13

sale the sum of the winning bids was $900 million, while the sum of the second highest bids was only $370 million

Answer 13

Alaska North slope sale 1969

Question 14

conclude that “This result suggests that some firms may have systematically overvalued the tracts and/or failed to fully anticipate the impact of the ‘winner’s curse’.

Answer 14

Hendriks et al (1987)

Question 15

looked at the market for free agents in baseball and concluded that free agents were overpaid. The owners of major league baseball teams seem to have come to the same conclusion, and appear to have responded with the effective tactic of collusion. Salaries rocketed after a change in law in 1976, that allowed players to become free agents. From 1974 to 1979 the average salary jumped from $49,000 to $120,000

Answer 15

Cassing and Douglas (1980)

Question 16

how much was overpayment

Answer 16

20%

Question 17

applies to puzzle of corporate takeovers, where people seem prepared to pay significant premiums over real value. Winner’s curse seems consistent, as bidding firms make very little money, if any, through takeovers. Attributes it to the idea of hubris, and overconfidence of mangers falling victim to the winner’s curse.

Answer 17

Ross (1986)

Question 18

It is not feasible to verify the winner‟s curse as an outcome of all Summer Olympics and Winter Olympics bids. However, cost overruns, project revisions, delayed completion, financial deficit and debt are so much widespread that it is enough to conclude that the winner‟s curse is more the rule than the exception.

Answer 18

Andreff (2012)