The winner’s curse describes auction bidders’ tendency to pay more for an item than it is actually worth. Bidders may overvalue items based on incomplete information, emotions, or other subjective reasons. Winner’s curse often leads to buyer’s remorse, when the bidder realizes too late that they’ve paid too much.
“If it is true, as common sense tells us, that a lease winner tends to be the bidder who most overestimates reserves potential, it follows that the ‘successful’ bidders may not have been so successful after all.”
– Atlantic Richfield engineers, coiners of ‘winner’s curse’ term
Editor’s note: in the competitive real estate market we find ourselves in today, the winner’s curse ought to be front of mind for prospective buyers!