How do participants in an auction respond to the problem of the "winner's curse"?
A) they bid more aggressively to win the auction and avoid the "curse".
B) they exit the auction because winning can only be a bad sign of the object's worth.
C) all bid less aggressively, so that the winner ends up not regretting having won.
D) the winner regrets having won the auction.

Question

Quizplus · Accepted Answer

Participants in an auction respond to the problem of the "winner's curse" by bidding less aggressively. They do this to avoid overpaying for the item and regretting winning the auction. By bidding less aggressively, the final price is likely to be closer to the actual value of the item, and the winner is less likely to experience the "curse." Therefore, choice C, where all participants bid less aggressively, is the best answer.

How Do Participants in an Auction Respond to the Problem