Winner’s Curse

The winner's curse story begins with Capen, Clapp, and Campbell (1971), three petroleum engineers who claimed that oil companies suffered unexpectedly low returns " year after year " in early Outer Continental Shelf (OCS) oil lease auctions. OCS auctions are common value auctions, where value of the oil in the ground is essentially the same to all bidders. Each bidder has their own estimate of the (unknown) value at the time that they bid. Even if these estimates are unbiased, bidders must account for the informational content inherent in winning the auction: the winner's estimate of value is (one of) the