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The Existence and Persistence of a Winner's Curse: New Evidence from the (Baseball) Field


  • John D. Burger

    () (Department of Economics, Loyola College in Maryland, Baltimore, MD 21210, USA)

  • Stephen J.K. Walters

    () (Department of Economics, Loyola College in Maryland, Baltimore, MD 21210, USA)


This 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.

Suggested Citation

  • 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.
  • Handle: RePEc:sej:ancoec:v:75:1:y:2008:p:232-245

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    References listed on IDEAS

    1. Krautmann, Anthony C, 1999. "What's Wrong with Scully-Estimates of a Player's Marginal Revenue Product," Economic Inquiry, Western Economic Association International, vol. 37(2), pages 369-381, April.
    2. Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-930, December.
    3. John Goddard & Peter J. Sloane, 2005. "Economics of sport," Chapters,in: Economics Uncut, chapter 12 Edward Elgar Publishing.
    4. Koh, Francis & Walter, Terry, 1989. "A direct test of Rock's model of the pricing of unseasoned issues," Journal of Financial Economics, Elsevier, vol. 23(2), pages 251-272, August.
    5. Christopher R. Bollinger & Julie L. Hotchkiss, 2003. "The Upside Potential of Hiring Risky Workers: Evidence from the Baseball Industry," Journal of Labor Economics, University of Chicago Press, vol. 21(4), pages 923-944, October.
    6. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-883, December.
    7. Gary Charness & Dan Levin, 2009. "The Origin of the Winner's Curse: A Laboratory Study," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 207-236, February.
    8. Anthony Krautmann, 2009. "Market size and the demand for talent in major league baseball," Applied Economics, Taylor & Francis Journals, vol. 41(25), pages 3267-3273.
    9. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
    10. Paul M. Sommers & Noel Quinton, 1982. "Pay and Performance in Major League Baseball: The Case of the First Family of Free Agents," Journal of Human Resources, University of Wisconsin Press, vol. 17(3), pages 426-436.
    11. Edward P. Lazear, 1995. "Hiring Risky Workers," NBER Working Papers 5334, National Bureau of Economic Research, Inc.
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    Cited by:

    1. XiaoGang Che & Brad Humphreys, 2015. "Competition Between Sports Leagues: Theory and Evidence on Rival League Formation in North America," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(2), pages 127-143, March.
    2. repec:kap:atlecj:v:45:y:2017:i:3:d:10.1007_s11293-017-9545-7 is not listed on IDEAS

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - 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


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