Learning to avoid the winner's curse

The winner's curse is frequently observed in auctions: The person who bids the most and wins the auction may ultimately regret the bid since it often exceeds the value of the object being auctioned. Ball, Bazerman, and Carroll (1991) have shown that repeated experience as a bidder leads to little learning and repeated winner's curses. The current study investigated whether feedback and relevant experience could contribute to bidders learning to avoid the winner's curse in the two tasks that have dominated winners' curse research. The results showed that experience had little impact and that additional feedback reduced overbidding but never extinguished the winners' curse; instead, it was pervasive and highly resistant to learning. High endowments and limited feedback, in particular, led to the most extreme curses. The results are discussed with respect to the emotions associated with winning and the emotional bases of risky decision making.