scholarly journals The Valuator’s Curse: Decision Analysis of Overvaluation and Disappointment in Acquisition

2020 ◽  
Vol 17 (4) ◽  
pp. 299-313
Author(s):  
Onesun Steve Yoo ◽  
Kevin McCardle
Keyword(s):  
Decision Analysis ◽  
Winner's Curse ◽  
Expected Payoff ◽  
Entrepreneurial Ventures ◽  
Winner’S Curse ◽  
Competitive Effects ◽  
Rational Explanation ◽  
Uncertain Payoffs

Initial valuations of entrepreneurial ventures offering uncertain payoffs can often be overvalued by investors; namely, the expected payoff postacquisition is smaller than the expected payoff prior to acquisition when the investor harbors uncertainties about various components of the business. Common explanations involve irrationality such as psychological preference for potential over realized payoffs. We provide a different, rational explanation, which we term the valuator’s curse. It is similar in nature to the winner’s curse in auctions and the optimizer’s curse in decision analysis, but the source of the curse is neither from the competitive effects of an auction-type mechanism nor from the optimization effects in a choice among alternatives. Rather the effect is generated from the nonlinear evaluation of the payoffs, even though the inputs to the evaluation are unbiased. We formalize the valuator’s curse and discuss its implications to entrepreneur’s learning. The valuator’s curse proves a boon to the entrepreneur as it leads to larger capitalizations.

The Value of Victory - Neural Mechanisms of the Winner's Curse

2011 ◽  
Author(s):  
Wouter van den Bos ◽  
Arjun Talwar ◽  
Samuel McClure
Keyword(s):  
Neural Mechanisms ◽  
Winner's Curse ◽  
Winner’S Curse

The Real Winner's Curse

2017 ◽  
Author(s):  
Leopoldo Fergusson ◽  
Pablo Querubin ◽  
Nelson A. Ruiz ◽  
Juan F. Vargas
Keyword(s):  
Winner's Curse ◽  
The Real ◽  
Winner’S Curse

scholarly journals An Efficient Ascending-Bid Auction for Multiple Objects

2004 ◽  
Vol 94 (5) ◽  
pp. 1452-1475 ◽  
Author(s):  
Lawrence M Ausubel
Keyword(s):  
Privacy Preservation ◽  
Winner's Curse ◽  
Multiple Objects ◽  
Vickrey Auction ◽  
Treasury Bills ◽  
Winner’S Curse ◽  
Sealed Bid ◽  
Interdependent Values ◽  
Private Values ◽  
Current Price

When bidders exhibit multi-unit demands, standard auction methods generally yield inefficient outcomes. This article proposes a new ascending-bid auction for homogeneous goods, such as Treasury bills or telecommunications spectrum. The auctioneer announces a price and bidders respond with quantities. Items are awarded at the current price whenever they are “clinched,” and the price is incremented until the market clears. With private values, this (dynamic) auction yields the same outcome as the (sealed-bid) Vickrey auction, but has advantages of simplicity and privacy preservation. With interdependent values, this auction may retain efficiency, whereas the Vickrey auction suffers from a generalized Winner's Curse.

Anomalies: The Winner's Curse

1988 ◽  
Vol 2 (1) ◽  
pp. 191-202 ◽  
Author(s):  
Richard H Thaler
Keyword(s):  
Field Studies ◽  
Risk Averse ◽  
Common Phenomenon ◽  
Winner's Curse ◽  
Winner’S Curse ◽  
Empirical Question ◽  
Common Value ◽  
Winning Bidder ◽  
Common Value Auction ◽  
Very High

Next time that you find yourself a little short of cash for lunch, try the following experiment in your class. Take a jar and fill it with coins, noting the total value of the coins. Now auction off the jar to your class (offering to pay the winning bidder in bills to control for penny aversion). Chances are very high that the following results will be obtained: (1) the average bid will be significantly less than the value of the coins (bidders are risk averse); (2) the winning bid will exceed the value of the jar. Therefore, you will have money for lunch, and your students will have learned first-hand about the “winner's curse.” The winner's curse cannot occur if all the bidders are rational, so evidence of a winner's curse in market settings would constitute an anomaly. However, acting rationally in a common value auction can be difficult. Solving for the optimal bid is not trivial. Thus, it is an empirical question whether bidders in various contexts get it right or are cursed. I will present some evidence, both from experimental and field studies, suggesting that the winner's curse may be a common phenomenon.

Strategic Nondisclosure in Takeovers

2021 ◽  
Author(s):  
Jing Li ◽  
Tingjun Liu ◽  
Ran Zhao
Keyword(s):  
Social Welfare ◽  
Winner's Curse ◽  
Cautionary Note ◽  
Winner’S Curse ◽  
Target Value ◽  
Hard Information ◽  
Withholding Information ◽  
Acquisition Price

We examine takeover auctions when an informed bidder has better information about the target value than a rival and target shareholders. The informed bidder’s information is either hard or soft, and only hard information can be credibly disclosed. We show that withholding information creates a winner’s curse, thereby serving as a preemption device that deters the rival’s participation. In turn, an endogenous dis- closure cost arises that induces the informed bidder to optimally withhold favorable information to minimize the acquisition price—breaking down the standard  unraveling result, even if his information is always hard. Perhaps surprisingly, stronger competition from the uninformed bidder can reduce the target shareholders’ payoff and increase the payoff of the informed bidder while unambiguously improving social welfare. Moreover, “hardened” information can reduce the gains to trade, decreasing welfare but increasing shareholders’ payoff. Our results provide a cautionary note to promoting more competition and more disclosure.

Prices and the Winner's Curse

1999 ◽  
Author(s):  
Paul Klemperer ◽  
Jeremy Bulow
Keyword(s):  
Winner's Curse ◽  
Winner’S Curse
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