Simulations in a Real Context
In the Harvard article cited above, the author discussed the difference between private and common value assets in the context of the Winner’s Curse. This topic piqued my interest because in lecture, we tend to describe real life situations like auctions and bargaining scenarios through mathematical simulations that stray far enough from the real life versions of these scenarios for a lot of students to have a hard time imagining how they would work in real life. It was refreshing to read about how an auction may not work in a way where we could simulate the outcome because not every decision is entirely based on a rational expectation in the near future. In the case of private-value assets (the famous painting, The Scream, was used as an example), items are valued differently by different people for different reasons. One person may value the painting more than its current market value because they have a personal connection to the artwork. This is very different from common-value assets like corn and oil prices, where everyone in the market should have a nearly identical valuation for the item, thus making bargaining simulations easy to do for that item. I encourage those who read this to also read the article above, as I found it to be a breath of fresh air from the traditional simulations we discuss in class.