1. Tycoon Oil Team 6 Theresa Kayzar Zach Pendley James Rohret Sample pages from report.

2. Tycoon Oil Founded in 1952 in Houston, Texas Bobby Taylor CEO Interested in a tract of sea bottom for oil drilling in Gulf of Mexico Desires to make profit for retirement spending

3. Lease Background First price sealed bid auction Bobby hired his friend Geologist George to give him a signal. Our signal value is $123 million Bobby needs help!

4. Assumptions The same twenty-four companies in our historical data will bid on future similar leases, and they will be the only bidders. The Geologists employed by each bidding company are all equally expert and can on average estimate the correct values of the leases. Except for their means, the distributions of all the the signals for a given value are identical. All of the companies act in their own best interests, have the same profit margins and the same needs for business. Thus, all companies will use the same strategy to determine their bids.

6. Simulation Based on our assumptions we know the errors are normally distributed. Mean of ZERO Smaller standard deviation will produce errors that are close to the mean

7. Simulation Created Simulation for 5,000 leases and 4 rings using NORMINV New Standard Deviation: 4.3754

8. Winner’s Curse Maximum Error of each auction to determine the winner’s curse. Winner’s Curse = 4.515 To calculate our bid we subtract the winner’s curse from the ring signal: 107.3 – 4.515 = $102.79

9. Winner’s Blessing Lower our bid by the difference between the highest bid and the second highest (unnecessary money the winner pays) Average Winner’s Blessing: $3.195 million