BazermanMoore

to have overbid, or at least not by the same margin. Yet, most people ignore the effects
of uncertainty, even falsely viewing the presence of lots of bidders as a signal that they
should be confident of the commodity’s value and quality.
Corporate takeovers in the last two decades have provided ample evidence that
acquiring companies often compete destructively against each other and pay too much
for what they get. As many as one-third of all acquisitions proved to be failures, and an
additional one-third failed to live up to expectations. In addition, any financial synergy
created by mergers usually goes to the target, not the acquirer. Potential acquirers
should temper their optimism by recognizing that the winning bidder is likely to acquire
a company that is worth far less than the winning bidder’s estimate of its value.
As the Internet attracts more and more auction participants each day, the lessons
of the winner’s curse become more important. The good news is that eBay and other
Web-based auction sites have created an excellent means of enabling efficient trades
between a seller and a buyer who potentially values a particular item more than the
seller. The bad news is that, among these buyers, there will be lots of suckers. Who will
they be? They are most likely to be ill-informed buyers in auctions with lots of bidders;
these buyers will have failed to consider the auction from the perspective of the seller
or the other bidders. So, the next time you place an online bid on a hot commodity,
remember to ask what its popularity might tell you about your valuation.
DISCUSSION
Discussion 61
Bazerman and Chugh (2005) coined the term ‘‘bounded awareness’’ to describe the
narrowing of attention and focusing in negotiation. The concept of bounded awareness
overlaps to a degree with the concept of availability (Tversky & Kahneman, 1974) introduced
in Chapter 1 and illustrated in Chapter 2. Both concepts confront the fact that
important information often remains unavailable to the decision maker. However, the
two concepts have different foci. Unlike bounded awareness, availability is a general
cognitive heuristic. That is, availability explains the tendency for decision makers to
assume that, across contexts, information that is most readily available, such as vivid
data, is more common than less available information. In contrast, bounded awareness
examines the specific groups of variables that are likely to be in or out of focus in specified
domains. Your knowledge of the specific contexts and consequences of your
bounded awareness will make you better able to avoid their pitfalls.