Is it Possible to Avoid the Winner’s Curse?

I found this very interesting article about how self-made millionaires are avoiding the winner’s curse.  The surprising thing is how naively simple it seems it is to avoid the winner’s curse.  The article “How Self-Made Millionaires Avoid the Winner’s Curse” explains that self-made millionaires are avoiding the winner’s curse by simply lowering their valuation of the object they are bidding on.  They lower the valuation according to how much they believe it is overvalued and other external information.  This aspect of avoiding the winner’s curse is the easy part according to the article.  The difficult part is the self-made millionaires sticking to their lowered valuation and not getting caught up in the auction.  This is actually the real strategy in avoiding the winner’s curse, because this is what is so difficult.  The winner’s curse lies in the human nature of the bidders and their desire to win the object.  During an auction human nature causes bidders to bid in a manner to ensure their victory.  But, many times this causes the winning bidder to have paid more than they wanted to and possibly more than the object was actually worth.  It is at this point that the winner’s curse sets in and the winning bidder realizes their error.  This is why taming this human nature is what really needs to occur in order to avoid the winner’s curse.  This principle being used successfully by self-made millionaires shows that human nature and the winner’s curse can be defeated.  Considering this if other individuals and corporations adopt this strategy, then maybe the winner’s curse can become something of the past.

Source:

http://www.forbes.com/sites/russalanprince/2013/10/28/how-self-made-millionaires-avoid-the-winners-curse/

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