The Winner's Curse Says That

question 16

Multiple Choice

The winner's curse says that:

• A) the highest bidder in a competitive auction is likely to realize negative profits.
• B) the winner of any lottery is likely to realize negative profits.
• C) successful firms often lose their intensity over time.
• D) to stay first in its industry, a leader must innovate constantly.
• E) firms should strive to be second best.

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Definitions:

Dominant Strategy

In game theory, a strategy that is best for a player, regardless of the strategies chosen by other players.

Nash Equilibria

A concept in game theory where no participant can gain by unilaterally changing their strategy if the strategies of others remain unchanged.

Maximin Strategy

In decision-making and game theory, a strategy which maximizes the minimum gain that can be achieved, focusing on the most favorable outcome of the worst possible scenarios.

Entry-Deterrence

Strategies employed by existing firms in a market to prevent or discourage new competitors from entering the market.