Am I on the right track here?

3. Your Uncle Fred is considering going to a Christie's open-outcry auction to bid on some antique jewelry (which he knows that his wife would love).Christie's (since it is a high-quality auction house) is willing to vouch for the authenticity of the jewelry, so Fred is not worried about being defrauded.However, Fred has heard about something called "the winner's curse" and has asked you if he should be worried about it.Explain the winner's curse to Uncle Fred, and then advise him as to whether he should be worried about it and why (or why not). (6 points)

I would be very excited for my Uncle Fred at this opportunity and wish him luck. In particular, it is great that this auction is being hosted at Christie's due to the great brand reputation and expertise of their sellers. At the same time, it is good that Fred has heard about the "winner's curse" though he doesn't have too much reason to be worried.

The winner's curse is a concept that occurs in common value auction where all bidders have the same value for an item, but the receive different information and signals about the value of the product (e.g. the oil field contains the most pristine oil). Therefore, the winner is the bidder with the most optimistic valuation of the product and usually has a tendency to overestimate the value and overpay. Accordingly, they will be "cursed (and disappointed!) in one of two ways: (1) the winning bid will exceed the value of the auctioned product/asset making the winner worse off in absolute terms, or the value of the asset/product will be less than the bidder anticipated, so the bidder would garner a net gain, but still be worse off than anticipated

If Fred where to need to mitigate against the winner's curse, general approach to dealing with the winner's curse is to (1) recognize it and then adjust one's bidding (downward) accordingly. It would also be beneficial to imagine before each bid, that if you did win the item (in this case the jewelry) how would you feel. That should guide Fred's decision making.

However, the winner's curse occurs in common value auctions, not private value auctions. A Common Value Auction is defined as where the value of the good in question is the same for all involved, yet the differs differ in their estimates of that value. For example, drilling rights off the coast of XYZ country, or lumbering rights in a forest never before seen or surveyed. A private value auction however, is defined when each bidder knows his or her fair price for the item (e.g., a diamond to complete the set of diamonds may be worth more to Fred than to his friend John), it has been independently validated (in this case, by Christie's), and bidders differ int heir values of the object. In this case, the auction is a private value auction and Fred should not be too worried about the winner's curse. Wish him well at Christie's!