No. 35 · Decisions · Economics
Winner’s Curse
In a contest over an uncertain prize, the winner is often whoever overestimated it most.
In the Almanac
“The empire for sale”, 193 · “Quaker Oats and Snapple”, 1994–1997
Both stories in full, three ways to use it and where it misleads.
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Questions
What is Winner’s Curse?
The Winner's Curse happens when many bidders estimate an uncertain value. Their guesses scatter around the truth, and the highest guess wins, so the winner is often the person who overestimated the most.
How do you use Winner’s Curse?
Before any bidding war, whether for a house, a candidate or a company, set your walk-away price while you're calm. If you win easily or by a mile, ask what you might have missed, and be willing to let someone else overpay.
When does Winner’s Curse matter?
Winner’s Curse is one of the 35 mental models for decisions, the situations where you ask: Which way should I go? Within that, it belongs to “Committing, and when not to”, alongside Burn the Boats, Circle of Competence and Devil’s Advocate Position.
What is an example of Winner’s Curse?
Two stories show it at work: The empire for sale (193) and Quaker Oats and Snapple (1994–1997). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Winner’s Curse?
Pyrrhic Victory, Anchoring and Optimism Bias. Winner’s Curse itself comes from economics.