GAME 4 Auctioning a Penny Jar (Winner’s Curse)
Show a jar of pennies; pass it around so each student can have a closer look and form an estimate of the contents. Show the students a stack of 100 pennies to give them a better idea of what the jar might contain. While the jar is going around,explain the rules. Everyone submits a “sealed bid”; hand out blank cards and ask the students to write their names and bids and return the cards. (This is also a good way for you to get to remember their names during the first meeting of the class or the section.) The winner will pay his bid and get money (paper and silver, not pennies) equal to that in the jar.Ties for a positive top bid split both prize and payment equally. When you explain the rules, emphasize that the winner must pay his bid on the spot in cash.After you have collected and sorted the cards, write the whole distribution of bids on the board. Our experience is that if the jar contains approximately $5, the bids average to $3.50 (including a few zeros). Thus the estimates are on the average conservative. But the winner usually bids about $6. Hold a brief discussion with the goal of getting across the idea of the winner’s curse.
The emphasis of this game is a concept relating to auctions is a simple enough game to play early in the semester if you want to increase interest in the topics or hook additional students. One could certainly save this game until ready to cover auctions.