Experimental economics, summary paper Essay Example | Topics and Well Written Essays - 500 words - 1

Experimental economics, summary paper - Essay Example The winners curse cannot occur if all bidders are rational, thus when the winner curse occurs it is considered a market anomaly. In an auction marketplace in which they are a lot of bidders one must utilized a more aggressive bidding strategy. Another risk associated with auctions in which there are lots of participants is for the winner to overstate the value of the item. In 1983 Max Bazerman and William Samuelson conducted an experiment on MBA students to test the winner’s curve concept. They filled cookie jars with coins and they ask the students to make money bids for the cookie jar full of change. All cookie jars were valued at $8.00, but this variable was unknown to the participants. The results were that the mean winning bid was $10.01 which means that student overestimated the value by $2.01. The winners were cursed with an item that was worth less than what they paid for. Often economic anomalies occur due to the existence of asymmetric information. An industry in whi ch there are often projects that can be worth millions or nothing is the oil business. When companies make bids on oil exploration project the bids are done knowing that there is a possibility of complete failure. Market anomalies offer occur in these types of auctions.