The Winner's Curse of Bidding

How competitive bidding to host events leads the winning city to overpay, and how the IOC changed its bidding process after cities withdrew.

Cities compete to host mega-events. This creates a winner’s curse.

The winner’s curse

In an auction for something of uncertain value, the winner is often the bidder who most overestimated its value, so the winner tends to overpay.

Applied to events

Cities promise bigger venues and more spending to win.
The most optimistic city wins.
It then faces costs exceeding benefits.

Withdrawals

Many cities withdrew from bidding for the 2022 Winter Olympics and 2024 Summer Olympics, including Oslo, Hamburg, Boston and Budapest, after public opposition or referendums.

IOC reforms

The International Olympic Committee responded:

2017: awarded 2024 to Paris and 2028 to Los Angeles at the same time.
2019: replaced competitive bidding with targeted dialogue with preferred hosts.
Encouraged use of existing venues.

Lesson

Auctions for events with uncertain benefits can lead winners to promise too much.

The optimistic bid

Five cities bid for a games. The winner promised the most new stadiums, based on the rosiest forecasts, and later struggled to pay for them.

Thinking winning a bid is always a victory

The winner may have overpaid due to overoptimism.

Key takeaways

The winner's curse makes winning bidders overpay.
Cities withdrew from Olympic bidding after 2014.
The IOC awarded 2024 and 2028 together in 2017.
The IOC now uses targeted dialogue instead of open bidding.