Question

In: Economics

1. Can you determine “overpaid” and “underpaid” by just looking at the size of a worker’s...

1. Can you determine “overpaid” and “underpaid” by just looking at the size of a worker’s salary? Why or why not?

2. What is the winner’s curse?

Solutions

Expert Solution

1. Ans:-    No, Salary is not the determining factor to decide whether a worker is 'overpaid' or 'underpaid' till we consider other associated factors. Work experience, cost of living, cost of relocation, income tax etc should be also considered while negotiating a salary in an organisation. The current market value of a worker's skill is also a great determining factor of salary. Grad and scale of workers in an organisation also tell a lot about the package of a worker. Besides the salary of a worker's counterparts in an organisation also tell whether he is underpaid or overpaid.

2.Ans:- When in an auction, a winning participant offers to pay a value which is far above the actual value of the asset it is called as winner's curse. This is a phenomena where the winner gets the asset in the auction but worse off as he/she overestimates the actual value which makes him/her to pay too much for the asset. This phenomena occurs due to emotions, miscalculations or incomplete information leading to a greater loss to the winning participant.

Rahul Sunny answered 1 year ago
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