Related to the discussion of Moneyball, the Baseball Prospectus considers the role of the Winner’s Curse on bidding on talent.
The curse is a side effect when bidding on something whose true value will not be known until after the auction; such as baseball players and oil leases; but the bidders have some information that allows them to estimate the value. If the bidder with the highest estimate has overestimated the true value of the item, if they are the winner bidder, they lose money.
How do you bid? You can try Mike Shor’s applet to learn how.
