Abstract: The phenonenon of a bidder suffering a loss due to winning an auction at an overvalued price is called winner's curse. In this paper, based on the limited attention theory from information economics and the over-action and Herd effect theory from behavior eco-nomics, we extend the first price common value auction model. Using data including 6,690 samples from on-line Taobao Judicial Foreclo-sure in Zhejiang province, China in 2020 to test the theoretical hypothesis, we find that (1) large crowd size leads to a high premium that may cause the winner to suffer a loss, and this is called the winner's curse effect of the crowd; (2) the effect is caused by bidders' over-reaction and conformity behavior in the presence of the crowd, but the path of information transfer through the crowd is not empiri-cally detected. Our conclusions are theoretically extended from the classical common value auction model, consistent with the implica-tions from the over-reaction and Herd effect theory, and fully tenable in the robustness test. This paper could be a useful empirical proof as the economic anomaly in auction markets.

Key words: the Winners' Curse, the crowd, attention, auction, on-line judicial foreclosure