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

John Burger and Stephen Walters ()
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Stephen Walters: Department of Economics, Loyola College in Maryland

No 625, Working Papers from International Association of Sports Economists, North American Association of Sports Economists

Abstract: 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.

Keywords: market efficiency; bounded rationality; overbidding (search for similar items in EconPapers)
JEL-codes: C93 D44 D81 J41 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2006-10
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-knm and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Existence and Persistence of a Winner's Curse: New Evidence from the (Baseball) Field (2008)
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