Preferences and decision errors in the winner’s curse

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Preferences and decision errors in the winner’s curse

Author Info

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

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Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 34 (2007)
Issue (Month): 3 (June)
Pages: 241-257
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:kap:jrisku:v:34:y:2007:i:3:p:241-257

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References listed on IDEAS
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Quiggin, John, 1992. " The Pioneer's Curse: Selection Bias and Agricultural Land Degradation," Journal of Risk and Uncertainty, Springer, vol. 5(3), pages 241-46, July.
Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
Huber, Joel & Payne, John W & Puto, Christopher, 1982. " Adding Asymmetrically Dominated Alternatives: Violations of Regularity and the Similarity Hypothesis," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 9(1), pages 90-98, June.

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