Winner's curse

[3] The winner’s curse phenomenon was first addressed in 1971 by three Atlantic Richfield petroleum engineers who claimed that oil companies suffered unexpectedly low returns "year after year" in early Outer Continental Shelf oil lease auctions.

However, it is worth repeating here that for auctions with private value (i.e. when the item is desired independently of its value in the market), winner's curse does not arise.

Similarly, there may be occasions when the average bid is too low relative to exterior market conditions e.g. a dealer recognizing an antique or other collectible as highly saleable elsewhere when other bidders do not have the necessary expertise.

In the 1950s, when the term winner's curse was first coined, there was no accurate method to estimate the potential value of an offshore oil field.

The company who wrongly estimated at $20 million and placed a bid at that level would win the auction, and later find that it was not worth as much.

In studies involving many tests on one sample of the full population, the consequent stringent standards for significance make it likely that the first person to report a significant test (the winner) will also report an effect size much larger than is likely to be seen in subsequent replication studies.