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The Winner's Curse under Behavioral Institutions

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  • Nadine Chalß

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    (Friedrich-Schiller-University Jena, Germany)

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    Abstract

    Empirically, social dilemma under information asymmetry are often much less pronounced than theory predicts. Traders experience a winner's curse and maintain efficiency enhancing exchange of commodities when theory predicts none. Especially under competition, cursed parties undergo severe losses and thereby fund social welfare. Hence, if one cures the winner's curse, one often decreases social welfare. Here, I test how market efficiency can be maintained without individual losses. In a competitive common value auction, parties sidestep both market inefficiency and a winner's curse by judging quality-by-price, and setting price-by-quality.

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    File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_2011_011.pdf
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    Bibliographic Info

    Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2011-011.

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    Date of creation: 25 Feb 2011
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    Handle: RePEc:jrp:jrpwrp:2011-011

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    Keywords: imperfect information; common value auction; price-quality relation;

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