The Existence and Persistence of a Winner’s Curse: New Evidence from the (Baseball) Field
AbstractThis study takes advantage of recent developments in the measurement and valuation of individual output in the baseball labor market to (i) reassess prior evidence that this market is afflicted by the winner’s curse phenomenon and (ii) test whether bidders learn to avoid this curse over time. Though we find no evidence of negative average returns on player contracts for the earliest cohort of baseball free agents, we conclude that teams in that era failed to efficiently discount their bids in accord with available information, especially about risk. What is more, evidence from a larger sample of players signed in the late 1990s shows that teams have continued to overvalue inconsistent free agents and failed to limit their bids to conform to players’ lower values in small markets. This is consistent with experimental evidence that finds bounded-rational behavior when bidders are faced with complex valuation problems involving multiple elements.
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Bibliographic InfoPaper provided by International Association of Sports Economists & North American Association of Sports Economists in its series Working Papers with number 0625.
Length: 34 pages
Date of creation: Oct 2006
Date of revision:
market efficiency; bounded rationality; overbidding;
Other versions of this item:
- John D. Burger & Stephen J.K. Walters, 2008. "The Existence and Persistence of a Winner's Curse: New Evidence from the (Baseball) Field," Southern Economic Journal, Southern Economic Association, vol. 75(1), pages 232-245, July.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-11-04 (All new papers)
- NEP-CBE-2006-11-04 (Cognitive & Behavioural Economics)
- NEP-EXP-2006-11-04 (Experimental Economics)
- NEP-KNM-2006-11-04 (Knowledge Management & Knowledge Economy)
- NEP-UPT-2006-11-04 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"The Origin of the Winner's Curse: A Laboratory Study,"
American Economic Journal: Microeconomics,
American Economic Association, vol. 1(1), pages 207-36, February.
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