Market designers’ clock-auction efficiency claims were internally incoherent.

Evidence

But what is most notable about this passage is that it advocates a very specific type of auction—a clock auction—and does so on the basis of its ability to avoid the “winner’s curse,” as evident by its demonstrably superior “efficiency.” The reason this claim is so notable is because it is incoherent on its own terms: it only makes sense to attribute “97 percent efficiency” in the case of private valued auctions. If toxic assets are common valued, then all distributions are efficient by definition, and therefore the efficiency criterion is useless, or at best, irrelevant. While the criterion does make sense in the case of private valued auctions, one can never suffer from the winner’s curse in such cases, again by definition, and therefore the argument to prefer the clock auction on the grounds of information aggregation is nonsense. Since the market designers’ claim that one could avert the crisis by increasing information about the value of assets implied that the assets must be common valued (or else the link between auction performance and crisis aversion is severed), the “efficiency” evidence was especially misleading. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 865