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Is There a Winner's Curse In The Market For Baseball Players? Evidence From The Field

Blecherman, Barry and Camerer, Colin F. (1996) Is There a Winner's Curse In The Market For Baseball Players? Evidence From The Field. Social Science Working Paper, 966. California Institute of Technology , Pasadena, CA. (Unpublished)

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A winner's curse exists in common value auctions when bidders fail to fully account for the fact that the winning bidder's valuation of the object is an upward-biased estimates of its true (unknown) value. Previous studies have reported mixed evidence for a winner's curse in oil lease auctions, corporate takeovers, auctions for failed banks, and in many experiments. In this paper we search for a winner's curse in the 1990 negotiations for free agent baseball players. Free agents are overpaid, relative to direct estimates of the revenue impact of their performance, by about 50% on average. A control sample of non-free agent players, in contrast, are overpaid by only 1 %. However, proper adjustment for the winner's curse requires bidders to bid less when the variance of an object's value is lower; and salaries are lower for players with more variable previous performances. Taken together, the data show a large winner's curse but the curse is not due to teams mistakenly paying more for high-variance players.

Item Type:Report or Paper (Working Paper)
Camerer, Colin F.0000-0003-4049-1871
Additional Information:Comments by the first author's dissertation committee members, Joe Harder, Paul Kleindorfer, Howard Kunreuther, and Keith Weigelt, were very helpful. Funds were provided by the Risk and Decision Processes Center of the Wharton School and by NSF grant SES88-09299.
Group:Social Science Working Papers
Funding AgencyGrant Number
Wharton School, University of PennsylvaniaUNSPECIFIED
Series Name:Social Science Working Paper
Issue or Number:966
Record Number:CaltechAUTHORS:20170816-143334824
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:80503
Deposited By: Jacquelyn Bussone
Deposited On:17 Aug 2017 17:13
Last Modified:03 Oct 2019 18:31

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