Question from Past Microeconomics Qualifying ExamEdit

Fall 2004 - Section I, Question three, George Mason University

T, F, U. State first whether the following statements are true, false or uncertain. Then briefly explain your reasoning in four or five sentences. You may use a graph if it helps clarify your answer.

In experiments on the "winners' curse," there are usually more trades than standard game theory would predict. One possible explanation is that buyers systematically underestimate the true value of the items on which they bid.


False. The Winners Curse states that buyers tend to overestimate the value of what they buy. This seems to imply that there will be more trades than with perfect information onboth sides, because people are willing to pay more.

If buyers would underestimate the true value of the items they are bidding on then less trades should be observed.

This micro-stub needs improving.

Comment:Is this just a "faux" question or am I not understanding?

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