The winner's curse occurs:

Question

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The winner's curse occurs in common-values auctions where bidders are uncertain about the true value of the item being auctioned. In these auctions, the winner is likely to overpay because they will have made the highest bid based on their subjective estimate of value, which may be higher than the true value. This phenomenon is known as the winner's curse because the winner may end up regretting their bid and feeling like they have overpaid for the item.

The Winner's Curse Occurs