Winner’s curse at Gourmet Adventures

Often in M&A, there is a concern that the buyer has overbid – especially when there is competition for the target and the risk of winner’s curse is heightened. In essence, if firms bid based on their “unbiased estimates” of the target’s value, the bids may be normally distributed around the true value and the winner is especially likely to have overbid (cursed). The task then, is to shade one’s bid to avoid overbidding. A standard exercise to demonstrate this phenomenon is to have the students bid on a jar of coins (which I describe as a restaurant chain). This is of special interest in a strategy course since the risk of being cursed is driven by the variance around the valuation (not the mean). Variance, it turns out, is driven by aspects of the target that are hard to value. These include strategic resources, human capital, complementarities, cross business synergies (e.g., layers of coins to reflect different target business units), or any other source of uncertainty. As such, even if the winner’s curse is covered in another course, these elements will be specific to a strategy course. Here are materials needed to run the exercise:

  • Instruction sheet describing the bidding/valuation task (and to submit bids)
  • Spreadsheet to record the results and show a simple estimation method
  • PowerPoint slides to lead discussion
  • 500ml jar with quarters, pennies, and nickels (as shown)

If you teach an online course, there is also a nice online simulation of this at

Contributed by Russ Coff

5 thoughts on “Winner’s curse at Gourmet Adventures

  1. Nils PLAMBECK asks how much time the exercise takes:

    Hi Nils.

    Including the debrief, it can easily take a full class period (75 minutes or so). The exercise itself takes about 30 minutes but then there is discussion about the winner’s curse and how it relates to strategic factors in M&A. I ran this at HEC a number of years ago and used some layers of Euro cents and US coins to add a discussion of country risk and exchange rates to the mix. Any source of uncertainty (variance in valuations) increases the risk of the winner’s curse.

  2. Pingback: Aventures Gastronomiques: Cursed again |

  3. Pingback: Winner’s Curse: Online Edition |

  4. I realize that I am probably missing something obvious … but how much of quarters, nickels and pennies do I put in the jar? I somehow figured this out awhile back because I have a jar full of coins, but I have no idea what I put in. thanks, Laura

    • Hi Laura.
      The amounts that I use are listed in the spreadsheet (summary & solution tab, scroll down to the “simple solution” and see the “actual value” column). You don’t really need to stick to that. I would probably verify that the estimation tool (e.g., 9ml of quarters = $2) can yield reasonable estimates of the total value. Of course, error in measuring quarters adds a whole lot more variance than error in measuring pennies.

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