The Winner’s Curse

So, here is an easy way to raise money at your next charity auction. Get a large glass jar, fill it with at least one hundred one pound coins and auction it.

by John Royden

Head of Research

Understanding Finance

What you should find is that the jar sells for more than the value of the contents. 

If you were able to ask all the members of your bidding audience what they thought was in the jar, you should find their responses evenly distributed around a mean. The mean usually ends up being pretty close to the value of the coins in the jar. With £100 in the glass jar, you might find that the mean, or average, is £98 with the lowest estimate at £81 and the highest at £126.

In an auction, the person who bids £126 gets to win the auction and the jar worth £100: winners at auction often find that they bid too much.  This is called the winner’s curse and is used to denote the observations that the winner of an auction frequently pays too much.

This is what we frequently observe in competitive bidding situations for companies. It perhaps explains why, based on personal observation, bidders are not quite so keen to engage in a competitive and adversarial auction process for companies as they were in the past.

You avoid the winner’s curse by getting to count the coins in the jar, which in the corporate world is an exclusive lock-up agreement with a high-cost break clause. That is why, again in my opinion, we are seeing more bid situations with termination clauses that include heavy break fees being exchanged for permission to conduct due diligence and receiving a lock-up.

Understanding Finance

Helping clients understand what we do is key to building relationships. To explain some of the industry jargon that creeps into our world, we’ve pulled together a section of our site to help.


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