A situation in which a bidder over-values an auction item and is worse off because their bid is too high is known as the:
A) Ellsberg Paradox.
B) winner's curse.
C) Arrow Impossibility Theorem.
D) curse of the commons.

Question

Quizplus · Accepted Answer

The winner's curse occurs when a bidder overestimates the value of an item and ends up paying more than the item is worth. This can lead to the winner being worse off than if they had not won the auction. The other options (Ellsberg Paradox, Arrow Impossibility Theorem, and curse of the commons) refer to different economic concepts and are not applicable in this scenario.

A Situation in Which a Bidder Over-Values an Auction Item