Numerical answer
The four sentences below, when properly sequenced, form a coherent paragraph. Arrange them in order and key in the correct sequence of numbers.
1. Economists call this the winner's curse: in a competitive bidding process, the winning bid is disproportionately likely to be the one that most overestimated the item's true value.
2. Suppose several bidders independently estimate the value of an oil field, each with some error, some too high, some too low.
3. Awareness of the curse leads rational bidders to shade their bids downward, especially as the number of competing bidders increases.
4. The bidder with the highest estimate, not necessarily the one with the most accurate estimate, wins the auction.
1. Economists call this the winner's curse: in a competitive bidding process, the winning bid is disproportionately likely to be the one that most overestimated the item's true value.
2. Suppose several bidders independently estimate the value of an oil field, each with some error, some too high, some too low.
3. Awareness of the curse leads rational bidders to shade their bids downward, especially as the number of competing bidders increases.
4. The bidder with the highest estimate, not necessarily the one with the most accurate estimate, wins the auction.
Show answer and solution
Answer: 2413
Sentence 2 sets up the scenario of bidders estimating a value with error. Sentence 4 draws the immediate consequence: the highest estimator wins, not necessarily the most accurate one. Sentence 1 names and explains this phenomenon as the winner's curse. Sentence 3 then describes the rational response to it. The order is 2-4-1-3.
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