Why does #WarrenBuffet recommend you should say “no” to auctions? From Google Ad words to eBay, from auctions for telecom spectrum to submitting tenders as suppliers, #auctions are ubiquitous.

At a personal level, several studies show, we mostly end up #payingmore for goods, during an auction. Even companies are not immune to this phenomenon.

According to a #McKinsey study, mergers and acquisitions (the ultimate auction) destroy value in more than half the cases. The acquisition brings losses ultimately

The winner gets the goods but they have to #pay for it. Sometimes, much more than the true value

It’s the winner’s curse!!!

So why do we fall victim to the winner’s curse?

1.The real value of many things is uncertain. The larger the number of parties, the higher the probability of an over enthusiastic bid

2.We want to outdo competition

Take Warren Buffet’s advice on auctions. “Don’t go”. If you are in an industry, where auctions are the norm, set a maximum price on it and deduct 20% to offset the winner’s curse.