Eisenhuth, Roland and Ewers, Mara (2010): Auctions with Loss Averse Bidders.
This is the latest version of this item.
We theoretically and experimentally study independent private value auctions in the presence of bidders who are loss averse in the sense of Köszegi and Rabin (2007). In one specification, we consider gains and losses in two dimensions separately, about whether they receive the object or not, and how much they pay (narrow bracketing of gains and losses); in the other specification, we consider gains and losses over the entire risk neutral pay off, i.e. the valuation less the bid (wide bracketing of gains and losses). With wide bracketing, we show that the expected revenue for the auctioneer is higher in the first price auction than in the all pay auction, and with narrow bracketing, we show that the opposite is true for the revenue ranking between the first price auction and the all pay auction. In order to test the theoretical predictions, we conduct laboratory experiments, in which money and a real object is auctioned in both a first price auction and an all pay auction. In both settings, the average revenue is significantly higher in the first price auction, suggesting that bidders may behave according to the one dimensional model, although a real object is auctioned. Whereas our findings are inconsistent with narrow bracketing of gains and losses, they are consistent with wide bracketing of gains and losses.
|Item Type:||MPRA Paper|
|Original Title:||Auctions with Loss Averse Bidders|
|Keywords:||Auctions, Loss Aversion, Revenue Equivalence, Induced Valuations, Reference Dependence|
|Subjects:||D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C90 - General
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C70 - General
C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior
|Depositing User:||Roland eisenhuth|
|Date Deposited:||02. Dec 2012 15:10|
|Last Modified:||11. Feb 2013 12:20|
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Available Versions of this Item
Auction Design with Loss Averse Bidders: The Optimality of All Pay Mechanisms. (deposited 18. Jun 2010 05:43)
- Auctions with Loss Averse Bidders. (deposited 02. Dec 2012 15:10) [Currently Displayed]