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Preferences and decision errors in the winner’s curse

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  • Ellen Garbarino
  • Robert Slonim

Abstract

The problem of asymmetric information causes a winner’s curse in many environments. Given many unsuccessful attempts to eliminate it, we hypothesize that some people ‘prefer’ the lotteries underlying the winner’s curse. Study 1 shows that after removing the hypothesized cause of error, asymmetric information, half the subjects still prefer winner’s curse lotteries, implying past efforts to de-bias the winner’s curse may have been more successful than previously recognized since subjects prefer these lotteries. Study 2 shows risk-seeking preferences only partially explain lottery preferences, while non-monetary sources of utility may explain the rest. Study 2 suggests lottery preferences are not independent of context, and offers methods to reduce the winner’s curse. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Ellen Garbarino & Robert Slonim, 2007. "Preferences and decision errors in the winner’s curse," Journal of Risk and Uncertainty, Springer, vol. 34(3), pages 241-257, June.
    • Handle: RePEc:kap:jrisku:v:34:y:2007:i:3:p:241-257
    DOI: 10.1007/s11166-007-9013-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Winner’s curse; Takeover game; Decision error; Preferences; C91; D44; D81;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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