The Winner's Curse Effect of the Crowd in Auctions:Evidence from On-line Judicial Foreclosure of Zhejiang Province in 2020
The phenonenon of a bidder suffering a loss due to winning an auction at an overvalued price is called winner's curse.In this paper,based on the limited attention theory from information economics and the over-action and Herd effect theory from behavior eco-nomics,we extend the first price common value auction model.Using data including 6,690 samples from on-line Taobao Judicial Foreclo-sure in Zhejiang province,China in 2020 to test the theoretical hypothesis,we find that(1)large crowd size leads to a high premium that may cause the winner to suffer a loss,and this is called the winner's curse effect of the crowd;(2)the effect is caused by bidders'over-reaction and conformity behavior in the presence of the crowd,but the path of information transfer through the crowd is not empiri-cally detected.Our conclusions are theoretically extended from the classical common value auction model,consistent with the implica-tions from the over-reaction and Herd effect theory,and fully tenable in the robustness test.This paper could be a useful empirical proof as the economic anomaly in auction markets.
the Winners'Cursethe crowdattentionauctionon-line judicial foreclosure
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