Preferences and decision errors in the winner’s curse

Ellen Garbarino () and Robert Slonim

Journal of Risk and Uncertainty, 2007, vol. 34, issue 3, 257 pages

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

Keywords: Winner’s curse; Takeover game; Decision error; Preferences; C91; D44; D81 (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s11166-007-9013-x

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