Journal of Risk and Uncertainty

, Volume 34, Issue 3, pp 241–257

Preferences and decision errors in the winner’s curse

Article

DOI: 10.1007/s11166-007-9013-x

Cite this article as:
Garbarino, E. & Slonim, R. J Risk Uncertainty (2007) 34: 241. doi:10.1007/s11166-007-9013-x
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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.

Keywords

Winner’s curseTakeover gameDecision errorPreferences

JEL Classification

C91D44D81

Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Department of EconomicsCase Western Reserve UniversityClevelandUSA
  2. 2.Marketing and Policy StudiesCase Western Reserve UniversityClevelandUSA