The "winner's curse" in auction bidding. In auction bidding, the
"winner's curse" is the phenomenon of the winning (or highest) bid
price being above the expected value of the item being
auctioned. The Review of Economics and
Statistics (Aug. 2001) published a study on whether bid
experience impacts the likelihood of the winner's curse occurring.
Two groups of bidders in a sealed-bid auction were compared: (1)
super-experienced bidders and (2) less-experienced bidders. In the
super-experienced group, 29 of 189 winning bids were above the
item's expected value; in the less-experienced group, 32 of 149
winning bids were above the item's expected value.
a) Find an estimate of p1, the
true proportion of super-experienced bidders who fell prey to the
winner's curse.
b) Find an estimate of p2, the true
proportion of the less-experienced bidders who fell prey to the
winner's curse.