Bye bye America's Cup, and the winner's curse that goes with it

Local sports fans might not be too happy, but fans of sensible economic decisions should be happy about Team Mercenary's decision to host the next America's Cup regatta in Barcelona. The New Zealand government and Auckland Council had pledged $99 million towards the hosting, but apparently that wasn't enough. As the New Zealand Herald reported yesterday:

The yachting syndicate today announced Barcelona officially as the next venue of the America's Cup, replacing Auckland of hosting duties for the 2024 event.

Emirates Team New Zealand and the Royal New Zealand Yacht Squadron made the announcement overnight, confirming the 37th running of the event to be held in September and October of 2024.

Team New Zealand successfully defended the Auld Mug last year with a 7-3 victory over Luna Rossa and then rejected a $99 million bid from the New Zealand Government and Auckland Council to host the next America's Cup, meaning the event looked likely to be hosted abroad.

This came after the Government had invested $136.5m in the previous defence, alongside $250m from Auckland Council.

A cost-benefit report last year found the New Zealand economy was left $293 million worse off.

The last sentence is the most damning, and the reason why we should be glad to see the end of the taxpayer subsidies (although there are multiple reports that disagree over the measurement of the costs and benefits of the last event). Now, there is good reason to be sceptical of economic impact studies generally, and studies of the America's Cup are no better than most (see here and here). However, the bias in such studies is almost always upwards. So, it is likely that the last running of the America's Cup left New Zealand a lot worse off than just $293 million out of pocket. That's a pretty expensive party, but it's certainly not going to drive economic growth. That money is better spent elsewhere.

It could have gone much worse, if the government had decided to engage in an extensive bidding war over the rights to host the regatta. Since the real benefit of hosting is largely unknown, in a bidding war the highest bidder is likely to be whichever bidder most over-estimates the benefits (since that largely determines what they are willing to bid). This is what economists refer to as the winner's curse. Presumably, Barcelona will either genuinely benefit to a greater extent than New Zealand would have from hosting (and therefore offered more money to Team Mercenary), or Barcelona over-estimated the benefits by more than New Zealand did (and therefore offered more money to Team Mercenary), or both. Probably both. Regardless, whether hosting the America's Cup is worthwhile is not something New Zealand need worry about for a while at least. That should provide some consolation at least for losing the big party.

Cricket coin tosses, auctions, and the winner's curse

The cricket season starts soon, so I was interested to read this article on ESPN Cricinfo, arguing to change the way that the toss is decided at the start of each match:

In cricket, the fairness of the pre-match coin toss is the subject of perennial debate. And rightly so.

The toss is random but its impact is not. Over a long series of games, the impact of the toss is neutral, but if it is meant to offer both sides an equal shot at winning any one game, it fails. Our analysis of more than 40,000 professional matches suggests as much: the team that wins the toss wins the game 2.8 percentage points more often. And if that were not sobering enough, in day-night one-day matches, the advantage of winning the toss is a whopping 5.9%...

Auctioning off the ability to choose whether to bat or bowl first is a better idea. Instead of awarding the decision to the captain who correctly calls the face of the coin left staring at the sky after landing on the ground, we should ask teams to use their knowledge and experience to price the value of getting to pick whether to bowl or bat first.

After giving the teams time to inspect the playing surface, each team should simultaneously bid the number of runs that should be added to the other team's score. The team that puts in the higher bid - proposes more runs be added to the other team's score - wins the right to choose whether to bowl or bat. (If the bids are tied, which suggests that teams price the ability to choose the same, an actual coin toss can be used to decide which team chooses and the runs would be added to the other team's score.)

It's an interesting suggestion. If both team captains are equally skilled (which is a heroic assumption), then the coin toss as currently practiced confers a random advantage to one team. Auctioning that advantage to the highest bidder would cost the team winning the toss some runs (because they would have to score additional runs in order to win), reducing the size of the random coin toss advantage. If both teams are equally adept at bowling first (or batting first), both captains are equally skilled, and both captains have complete information about the state of the pitch, then both would be willing to bid the same number of runs.

However, I see three problems here. First, as highlighted in the article:

Cricket teams already heavily use data to help guide decisions on who they draft, what to pay for each player, what tactics to use against each bowler and batter. And the decision on what to do when a team wins a toss is probably already guided by the analytics companies. So yes, teams with more money and better analytics obviously have a leg up.

So, it isn't fair to assume that both captains are equally skilled, because analytics matters. And that leads to the second problem, which is the winner's curse. Consider the two team captains. If both are rational then they will each bid the number of runs that they think fairly represents the advantage they would get from winning the 'coin toss auction'. They won't bid less than that number of runs, because that reduces their chance of winning the auction. They won't bid more than that number of runs, because that reduces their chance of winning the game, if they win the auction. This rational bidding behaviour is what would make this auction format attractive to many economists. However, the captain's estimates of the advantage they get from winning the auction is subject to some random error. They might overestimate the advantage, or they might underestimate the advantage. Since both captains are bidding at the same time, the one that overestimates the advantage by the most will win the auction. And they will likely have bid too many runs for the true value of winning the coin toss. That is the winner's curse. The auction format is good in theory, but it might simply change winning the coin toss from a likely advantage to a likely disadvantage. [*]

A third problem arises when the two teams are mismatched. How many runs should Afghanistan or Kenya bid when playing Australia or India? Could they bid negative runs? And, knowing that, would Australia or India be willing to bid many runs at all? It seems to me that this proposal would ensure that top teams always win the toss when playing against teams that are far below them.

As an economist, it would be interesting to me to see how this would all play out. However, as a cricket fan, the status quo is much preferable because at least the randomness gives the underdogs a chance. For that reason alone, I hope that we never get to see this in practice.

[HT: Marginal Revolution]

*****

[*] The winner's curse is a problem in an auction with many bidders. In an auction with only two bidders (such as this), it is possible that both might underestimate the size of the advantage, and whichever captain underestimates by the least will win. In that case, the winning captain does bank an advantage for their team, but the advantage is smaller than it would be based on a pure coin toss.

Game developers, Tiebout competition, and the winner's curse

Regular readers of this blog (or students I have taught in ECONS102) will know that I'm not a fan of subsidising particular industries, especially when it is the industries themselves that are crying out for the subsidies. Cue Calvin and Hobbes:

So, last month's news about the gaming development incentives in Australia was a little disturbing to me. As NBR reported (paywalled):

The Australian government’s recently announced 30% tax offset for game developers could lead to a brain drain if not matched by New Zealand, an industry body has warned.

Australia’s next federal budget will include a 30% refundable tax offset for video game development as part of the government’s National Digital Economy Package.

Australia’s Interactive Games and Entertainment Association said the break would spur the creation of new Australian game development studios, accelerate the growth of existing Australian studios, and attract blockbuster game studios to Australia, creating jobs along the way.

On this side of the Tasman, New Zealand Game Developers Association chair Chelsea Rapp said the Australian tax offset would give Australian studios a massive leg-up over their New Zealand peers.

New Zealand has an existing incentive programme for film, which has successfully attracted major projects to the country, but video games are specifically excluded from the scheme.

Rapp said the NZGDA had been campaigning for this sort of government support for nearly 10 years.

There are several interrelated issues here. First, as I note in my ECONS102 class, lobbying the government to get your firm (or your industry) a better deal is essentially a socially wasteful activity. Economists refer to it as 'rent seeking' - in this case, the New Zealand gaming development industry is seeking to gain some economic rent from the taxpayer in the form of the subsidy. It's socially wasteful to add a subsidy to an existing industry, because a subsidy leads to a deadweight loss (unless there are offsetting positive externalities, which are not apparent in this case). However, if a large enough proportion of gaming developers were really going to move to Australia, the loss of economic welfare from the lost industry could (in theory) be larger than the deadweight loss of the subsidy. That might justify a subsidy.

However, that brings us to the second issue - how much should government be willing to pay to keep a gaming development industry that is threatening to move overseas. Certainly, the government shouldn't be willing to pay more than the total economic welfare that the industry generates (or, more accurately, the economic welfare that the proportion of the industry that would otherwise move overseas generates). Paying just enough so that the gaming development industry decides to stay would be the best option. A smart gaming development industry would recognise this, and play off governments against each other, leading to Tiebout competition. Tiebout competition is a 'race to the bottom', where governments compete to offer the most generous subsidies and other support, so that the gaming developers will operate in their country. This almost ensures that the 'winning' government would end up paying out all of the potential economic welfare gains directly to the gaming development industry itself.

But it gets worse. Since no government has a perfect understanding of just how much the gaming development industry is worth, the government that 'wins' the Tiebout competition will almost certainly to be the government that most over-estimates the value of the gaming development industry. This is what is referred to as the winner's curse. Over-estimating the value of the gaming development industry will mean over-incentivising it, paying too much relative to the economic welfare that it generates.

Thankfully, at this stage the New Zealand government hasn't fallen into this trap. Gaming developers don't need to be subsidised, and we definitely don't need to be in a race to the bottom to attract them here. It's bad enough that we do this for movie production, where it already doesn't pay off.

The winner's curse and construction tenders

Finally, some sanity in terms of writing about the problems the construction industry is facing. John Walton wrote in the New Zealand Herald earlier this week:

Right now, of course, the construction industry is indeed booming - not just in housing, but also in commercial and infrastructure development. But companies are continuing to fail. Why?

The answer lies in the construction process and a misunderstanding of the roles of the participants. At its simplest, the owner provides the site, resource consents, designs and pays for the work. The contractor organises the work to the design and to the required legal standards, for the agreed price within the allocated time. Price and time are adjusted for unforeseen events and for changes instructed by the owner. To this extent, construction contracts legislate for uncertainty.

That uncertainty is exacerbated by an incomplete understanding of other project risks (ground conditions and supply chain issues like subcontractor and supplier pricing and availability) and unrealistic expectations on the part of owners, particularly that they can fill in the gaps in the design and instruct changes at their whim without cost consequences. The tender process encourages this opportunistic behaviour by forcing contractors to compete on incomplete, or simply unrealistic or unfair contract terms.

Contractors try to introduce some balance by excluding risks from their bids. They must then rely on the claims process to protect their margins.

This can turn the pricing process into something of a lottery. Typically, the cheapest price wins, which all too often is submitted by the contractor with the greatest appetite for risk, coupled with the most optimistic expectations for making claims under the contract.

Following contract award, managing design development, construction and capricious owner changes to the design becomes a considerable headache for contractors who need to be able to meet construction costs, pay subcontractors and protect their already slim margins.

Every time the issue of financially troubled construction companies comes up (and it seems to be coming up a lot lately), it makes me think of the winner's curse.

Consider a group of construction firms, tendering for a construction contract. Rational construction firms who have complete information about the project and associated risks (and with the same tolerance for risk) would all have the same expectations about the costs of completing the contract, so all would bid the same. However, not all construction firms have complete information (as Walton noted above) and not all firms have the same tolerance for risk. The construction firms may make random errors in determining their costs (or margins) and risks associated with the contract, so all of the construction firms will expect different completion costs (and margins and risks) associated with the contract. For firms with similar tolerance for risk, differences in expected completion costs (and margins) arise randomly - some will overestimate the completion costs (or underestimate the risk) of the contract, and some will underestimate the completion costs (or overestimate the risk or margins). Those who expect low completion costs will bid low for the contract, and those who expect high completion costs will bid high for the contract.

The real problem arises when the contract goes to whichever construction firm bids the lowest for the contract. This will be the firm that has most underestimated the completion costs, because they will be the firm that bid the lowest. The chances are high that, if there are enough construction firms entering bids, the eventual winner will have underestimated the completion costs compared with the true costs, and hence will not receive enough to cover their true costs. This is what we refer to as the winner's curse.

The problem is that consumers of construction firms' services are too focused on looking for the lowest bid. This virtually guarantees the problems we are facing in the construction industry. Walton's piece concludes:

The industry has a choice. Either it accepts that designs and prices will change and pay contractors accordingly, or take the time to remove contract uncertainties before fixing the price and instructing work to commence. Experience here and overseas would suggest that a combination of the two works best.

Walton is not very clear on his proposed solution. So, let me offer two options.

First, when a construction contract is put up for bids, the decision could be made independent of price. That removes the incentive to bid too low. Construction firms can then be realistic about the costs and risks they face, when preparing their bids, without worrying about a high bid ruling them out. Of course, it probably creates an incentive to bid too high, precisely because a high price won't rule the firm out of the process.

Second, adopt a variant of a second-price auction. Give the contract to the lowest bidder, but pay them the amount that was asked by the second-lowest bidder. Or, if the contract is not given to the lowest bidder, still pay an amount for the contract equal to the next highest bidder's offer. This ensures that the client isn't paying well over a 'fair' price for the contract (which would likely be the case for the first option), while providing some additional space for the successful firm, which has likely underestimated the completion costs. If second-price isn't enough, a third-price auction would further limit the chance of construction firms being underpaid because of their inability to accurately estimate costs.

Something clearly needs to be done. We don't want construction firms falling over mid-contract, and in a small market like New Zealand we can't afford to have the market dominated by only a couple of players. We need to ensure that sustainable contract prices are being paid, and the current system is clearly failing.

The winner's curse and why cities should prefer not to have Amazon's new HQ

As many readers will know, Amazon has been searching for a location for its second headquarters in the U.S. The Washington Post reported earlier this week (gated, but there is an ungated version on the New Zealand Herald website):

Amazon's search for a site for its second headquarters is now mostly playing out behind closed doors, as officials from 20 finalist locations provide the company with additional materials...

The Amazon search is a serious matter. The chosen city could reap 50,000 jobs and $4 billion in investments from the company. Taxpayers may be asked to foot billions of dollars of subsidies to win the deal. Housing markets and traffic patterns may be dramatically affected by the company's decision. A group backed by the Koch Brothers published a video opposing subsidies for the project. On the other hand, former Virginia governor Terry McAuliffe suggested recently, in an interview, that "whoever wins this thing is going to run for president."

The mayor of the winning city may feel like running for president. But eventually, whichever city wins the affections of Amazon and gets the second headquarters will almost certainly wish they hadn't. Why would I say that? Because of the winner's curse.

Consider a group of cities vying to be the location for the second Amazon headquarters (you can see the shortlist here). Rational city planners (or the city council or mayor or whoever is making the decision to try to woo Amazon) with the same preferences would all have the same valuations (or very similar valuations) for how much economic benefit Amazon will generate for their city (based on jobs growth, for instance). However, not all city planners have the same preferences, and the city planners may make random errors in determining how much value Amazon will provide the local economy, so all of the city planners will have different willingness-to-pay to attract Amazon. In this case, their willingness-to-pay reflects how much in incentives (local tax rebates, subsidies, etc.) they are willing to offer to Amazon in exchange for Amazon locating the second headquarters in their city. For city planners with similar preferences, these differences in willingness-to-pay arise randomly - some will overestimate how much they should be willing to offer to Amazon, and some will underestimate.

Now consider Amazon's decision. They will try to maximise their "economic rent", by choosing the city that will offer them the greatest advantage, which includes the amount of tax incentives and subsidies that are on offer. Cities where the planners have underestimated the value that Amazon will provide will offer Amazon relatively small incentives to locate there, and Amazon won't choose them as a result. The 'winning' city will likely be the city that offers the greatest incentives (the most tax incentives, or largest subsidies, etc.), which will be the city that over-estimates the value that Amazon will provide to the local economy by the most.

So sure, the 'winning' city will get the Amazon headquarters. But they will also win a lot of obligations for tax incentives and subsidies offered to Amazon. Overall, the gain in terms of jobs and tax revenues will likely be less than the subsidies paid to attract Amazon, adding up to a net loss for the city. Sometimes it's best not to win.

Free agents, the draft, and the winner's curse

The NBA season is just six weeks away, and the NFL starts this Thursday (or Friday for those of us in New Zealand). So, thinking about this recent article by Ben Falk is timely, and gives an excellent explanation of the winner's curse:

Three real estate investors are bidding on a building of unclear value. The first doesn’t think it’s a great property and enters a low bid. The second decides it has a lot of untapped potential and enters a very high bid. The third can see both pros and cons and offers something in between. The winner, of course, will be the second investor, the one who values it the most.

But here’s the problem: that investor is also the most likely to have overvalued the property. If this second investor is wrong about their guess that the building has untapped potential they’ll be stuck paying too much. This is a phenomenon known as the Winner’s Curse, where the winner of the bid will be the most likely to have priced it incorrectly. It applies to many types of bidding situations, and NBA free agency is no exception.

The team paying the most for a free agent is the team who values that free agent the most — who likely overvalues the player the most. It’s possible that all of the other teams with money undervalue the player and so the winner gets good value. But more likely than not the winning bidder will be the one that overpays the most.

The winner's curse doesn't just apply to free agents, but also to the draft. Teams don't have perfect information about each player available in the draft. Some teams will over-estimate the value of a player (and want to draft that player earlier), and other teams will under-estimate the value of a player (and want to draft that player later). Holding other things constant (like each team's needs for players in particular positions), the team that holds the most positive views of a player (that is, the team that most over-estimates their value) will draft that player. This suggests that many players are drafted too high - the winner's curse. As evidence of this, the NFL in particular has a long list of high draft picks who turned out to be busts (try this list, or this one).

Falk's article is also interesting in that it talks about endowment effects. Quasi-rational decision makers are loss averse - we value losses much more than otherwise-equivalent gains. That makes us are unwilling to give up something that we already have, or in other words we require more in compensation to give it up than what we would have been willing to pay to obtain it in the first place. Falk notes that:

Some overpay to keep their own free agents, falling victim to the endowment effect and thinking more highly of something they already have.

I'm less sold that endowment effects are an issue in pro sports. An endowment effect would require the teams to be trading players. With free agency that doesn't happen - they deal direct with the players. However, where teams do trade players (in exchange for draft picks or other players), they may hold out for more than the player is actually worth. Which probably reinforces the winner's curse for the team that receives the traded player.

[HT: Marginal Revolution, back in July]

Book review: Circus Maximus

I've been a bit quiet while trying to finish a bunch of things before year's end, but I did manage to finish reading Andrew Zimbalist's book "Circus Maximus: The Economic Gamble behind Hosting the Olympics and the World Cup". I mentioned this book in a post about the lack of economic impact of stadiums and arenas earlier this year.

When I think about the Olympic Games or the FIFA World Cup, and see the crazy investments that cities (or countries in the case of the World Cup) are prepared to make not only for the event once it has been awarded to them, but also in simply bidding for the event, I immediately think about the winner's curse. Say that the potential hosts don't know for sure what the benefit of hosting the event is, but must outbid all other potential hosts in order to be awarded the event. The 'winning' host will be the city (or country) which had the most wildly optimistic view of the benefits of hosting, since they will be the city (or country) willing to bid the most. And it is very likely that that city (or country) will have bid more than the real benefits of hosting are worth.

Zimbalist's book makes that point much more forcefully than I have above, and much more besides. Barcelona is the poster-child of successful Olympic Games. In one chapter, Zimbalist contrasts the particular experience of Barcelona in leveraging the hosting to develop the city into a future powerhouse of tourism, with the experience of Sochi hosting the Winter Olympics, and the largely wasteful expenditures and investment in that city. This wasteful investment arises because one of the key arguments made in favour of hosting these events is both the expected short-term and the expected long-term boosts to tourism. The opportunity cost of this spending on tourism promotion is potential very great, and Zimbalist astutely remarks at one point:

Each prospective host would do well to ask the question, if we have $10 billion or $20 billion or more to spend on promoting tourism, what is the most effective use of those resources?

How much more good could be done with that money, in terms of tourism promotion, through more conventional means?

Throughout the book, Zimbalist does a good job of outlining the evidence from the academic literature on the cost-benefit calculus of hosting these large events. As one would expect, the winner's curse is broadly evident. Zimbalist also does an excellent job of looking beyond the academic evidence, and bringing together stories that illustrate some of the very real negative impacts of hosting. I hadn't followed the case of Rio de Janeiro and the impacts on the favelas of hosting both the Olympics and the World Cup, but some of the stories are quite horrific. London also comes in for some criticism on the inability to leverage the Olympics for the betterment of people living in East London, the area immediately surrounding the main Olympic venues.

The first paragraph of the concluding chapter is a useful summary to finish this review on. Zimbalist writes:

The perennial claims that hosting the Olympics or the World Cup is an engine of economic development find little corroboration in independent studies. In the short run, the increasingly massive costs of hosting cannot come close to being matched by the modest revenues that are brought in by the games. The payoff, if there is one, must be realized in the long run. But even the legacy return is at best dubious. Much of the alleged legacy comes in the form of the qualitative gains, and the rest comes over very long periods of time, difficult to trace back to the several-week period of the games or the prior construction. But more often than not, the main legacy consists of white elephants that cost billions to build and millions annually to maintain, along with mountains of debt that must be paid back over ten to thirty years.

If there is one thing missing from this book, it is the consideration of smaller events, such as the Commonwealth Games (the Delhi games are mentioned a couple of times only) and the Rugby World Cup. These smaller events require smaller outlays from the hosts, but also have much smaller potential gains. Nevertheless, this is an excellent book both for those who are familiar with the literature on economic impact studies, and those who are not, along with anyone with a specific interest in the Olympics or World Cup.

The winner's curse and the Auckland housing bubble

The New Zealand Herald ran a couple of stories on house auctions in Auckland this week. In the first, Ray White Mission Bay owner Wayne Maguire gave his tips on how to win an auction:

Last week Mr Maguire staged a How to Bid and Buy at Auctions seminar for more than 130 house hunters, providing tips on the auction process designed to make bidders more competitive and help blow rivals out of the water.

Auckland property sales are dominated by auctions, with nearly half the region's May transactions done under the hammer.

Mr Maguire said competition for scarce property listings was cut-throat and serious buyers needed to turn up mentally focused and ready to perform...

Mr Maguire said it was important to have a financial plan and know your limit.

Buyers should jot down a running list of price thresholds - starting from the likely opening bid (usually around CV) and ending with the final price limit they are prepared to pay.

"You've got to stop when you hit your limit."

In the second article, Lane Nichols reported on a subsequent auction, and quoted one bidder:

Ms Flavell-Neville agrees the auction process pits buyers against each other, with the potential to induce reckless spending.

"You want to be the winner. I think I would have kept going for a bit longer just to win. But you have to have a hard limit.

"From what we've seen it seems the less people who are bidding the better because they just egg each other on."

The standard English auction really is a suckers' game. They're great for sellers, but not so much for buyers. Why? Because of the winner's curse.

Consider a group of potential buyers for a particular house. Rational buyers with the same preferences would all have the same valuations (or willingness-to-pay) for the house. However, not all potential buyers have the same preferences, and the potential buyers may make random errors in determining their valuations for the house, so all of the potential buyers will have different willingness-to-pay for the house. For buyers with similar preferences, these differences in willingness-to-pay arise randomly - some will overestimate the quality (and value) of the house, and some will underestimate. Probably, if we believe in the wisdom of crowds, the 'true' value of the house will be close to the average willingness-to-pay of all of the potential buyers.

Now take this group of potential buyers and subject them to an English auction for the house. In the English auction format, bids start low and each subsequent bid increases the price that the house would be sold for. The buyers who have underestimated the quality (and value) of the house will quickly drop out of the auction, because the bids will soon exceed their willingness-to-pay for the house. However, the buyers who have overestimated the quality (and value) of the house have an incentive to remain in the auction longer, since higher prices will remain below their willingness-to-pay. The chances are high that, if there are enough potential buyers bidding in the auction, the eventual winner will have overestimated the quality (and value) of the house, and hence will pay too much for their house relative to its 'true' value, making them worse off. In other words, as the bidder above is quote, when there are more bidders it is more likely that some of them have overestimated the value of the house, and they will egg each other on to higher prices - not good for the eventual winner.

The solution is to add one further tip to Wayne Maguire's set of tips - in your list of price thresholds, your final price limit you should be prepared to pay should be somewhat less than the maximum you are willing to pay for the house (engaging in what is termed 'bid shading'). This would help ensure you aren't cursed as a winner.

One final important point - if (as stated in one of the articles) around half of Auckland houses are being sold at auction, and auctions are well-attended with many bidders, then many Auckland houses are being sold subject to the winner's curse. So their selling price of many houses will be above their 'true' value. That means that conventional measures of the value of Auckland housing, such as the median house price, will be based on house sales that include all of these 'cursed' homes. Thus the median house price will most likely tend to overstate the value of houses in Auckland.

That's not the end of this story though. Rational buyers have complete information about the house they are buying and will make their assessment of its value (and their willingness-to-pay) based solely on the house's characteristics (location, construction quality, number of bedrooms and bathrooms, land area, views, etc.). However, most of us are subject to an anchoring bias when valuing things we want to buy - they first price we see will tend to affect our valuation (and our willingness-to-pay). Chances are that potential house buyers will have the median house price for an area (or for Auckland as a whole) in mind when they evaluate their willingness-to-pay for houses they are looking at (it would be hard not to - the median house price is probably the most widely reported measure of housing value, and if you're a house hunter it would be hard to avoid seeing the median house price). So future buyers are likely anchoring their valuations on over-estimated median house prices. Some of them will further over-estimate, win the subsequent auction (with associated winner's curse), and boost the median house price further. Rinse and repeat. Could the winner's curse and subsequent anchoring of willingness-to-pay explain part of the housing price bubble in Auckland?