QUESTIONS 88 AND 89 LEASESHISTORICAL SIGNALSCOMPANY 2 PROVEN COMPANY 1...

93. (Project 2) Assume that a simulation of 5000 sample auctions with 19 companies and a standard

deviation of $17.35 million produced a Winner’s Curse of $29.52 million. If the standard deviation

increased, determine how this change would impact the value of the Winner’s Curse. You should

state whether the Winner’s Curse would increase, decrease, or stay the same and also provide a

correct explanation regarding why the Winner’s Curse would increase, decrease, or stay the same.

(A) The Winner’s Curse would increase since the maximum errors in the 5000 auctions would

increase due to a larger standard deviation.

(B) The Winner’s Curse would increase since the difference between the maximum errors and

second largest errors in the 5000 auctions would increase due to a larger standard deviation.

(C) The Winner’s Curse would decrease since a larger standard deviation would lower the

probability of winning the auction, so companies would want to subtract more to increase their

profit.

(D) The Winner’s Curse would stay the same since all the errors in the 5000 auctions would be

closer to zero due to a larger standard deviation.

(E) The Winner’s Curse would stay the same since the standard deviation has no effect on the

Winner’s Curse.