Parkhurst, Gregory M and Shogren, Jason F (2011): How Losses affect Bidding Behavior in Vickrey Auctions.
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We use Vickrey uniform auctions to provide an indirect robustness test of the endowment effect. Our panel data promotes two results: (1) evidence of the endowment effect exists in that risk seeking behavior following losses is less severe for 'out of pocket' losses as opposed to foregone gain. We did not find support for the prediction that bidders recoil from future losses following a realized loss (i.e., become more risk averse); and (2) a form of gamblers fallacy termed the escalation of commitment better explains bidding behavior for inexperienced bidders—risk seeking bidding behavior is observed following a loss. But as bidders gain experience the escalation of commitment is attenuated for “out of pocket” losses but not for foregone gains.
|Item Type:||MPRA Paper|
|Original Title:||How Losses affect Bidding Behavior in Vickrey Auctions|
|Keywords:||Uniform Auction, Vickrey, Losses, opportunity cost, endowment effect, escalation of commitment|
|Subjects:||D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions
|Depositing User:||Gregory M. Parkhurst|
|Date Deposited:||06. Nov 2011 15:14|
|Last Modified:||19. Feb 2013 07:53|
Parkhurst, Gregory M., Shogren, Jason F., "The Influence of Losses on Bidding Behavior in Vickrey Auctions," 2011 Working Paper.