CORRECTING FOR THE INHERENT BIAS IN THE AVERAGE BIDDER APPROACH TO COMPETITIVE BID DEVELOPMENT

A key step in contract bid development is estimating the probabilities of winning with bids of various profit potentials. One of the most common approaches to estimating these probabilities, the average bidder approach, has an inherent bias which causes it to almost always over-estimate the actual chances of winning. This note explores the nature of this error and suggests a method to compensate for it.