What is the Winners Curse?
The winner’s curse, though it sounds like a very negative thing, is actually fairly simple to explain and to avoid. A winner’s curse occurs during an auction. Such an auction could be held for a single item, or for a company or it could refer to bids placed to obtain something like advertising space. The item upon which a bid is placed will have the same value to any person who wins the auction; so the auction is often called a common value auction. When a person bids higher than the actual value, he or she may win the auction, but also invokes the winner’s curse. In other words, he or she pays more than the actual value. If the person exceeds the actual value of the item, then he or she has won the item but lost financially. Many times the winner’s curse occurs when bidders have insufficient information about the real value of an item. If a potentially profitable stock is offered in an initial public offering (IPO), it’s hard to gauge whether the business will ultimately raise the val
Isn’t that term usually applied to the winners of auctions? DR. JOHN IOANNIDIS: In economics, the winner’s curse means that when you have lots of people making bids for an auction, the person who eventually wins probably has overpaid. If one could estimate the average of all the bids, that might be closer to the real value of the commodity. BROOKE GLADSTONE: And you say that that is exactly what’s going on in scientific journals, and the “curse” is simply the curse of publishing wrong information. DR. JOHN IOANNIDIS: It’s the curse of publishing exaggerated and possibly sometimes completely wrong information. Now, in scientific circles, currently in many fields, there is lots of research teams generating results on the same research question. Their average results, if you have 20 or 30 or 50 teams, probably reflect the truth. However, if only what are the most striking results eventually end up being published, especially in the most high visibility journals, these selected results are
