Loss Aversion and Competition in Vickrey Auctions: Money Ain't No Good

Rosato, Antonio and Tymula, Agnieszka (2016): Loss Aversion and Competition in Vickrey Auctions: Money Ain't No Good.

Abstract

We present results from an experiment with a within-subject design aimed at testing a unique prediction of expectations-based reference-dependent preferences and loss aversion in private-value second-price (Vickrey) auctions. If bidders have expectationsbased reference-dependent preferences, the total number of participants in an auction should affect bids in auctions for real objects but not in auctions with induced monetary values. Our findings are consistent with expectations-based reference-dependent preferences and loss aversion. In real-object auctions, subjects' bids are affected by the number of competitors and, on average, they decline with the intensity of competition. In induced-value auctions, instead, bids are unaffected by the intensity of competition. We also successfully replicate an experiment from Sprenger (2015) aimed at distinguishing expectations-based loss aversion from models of Disappointment Aversion. This provides additional evidence that our findings in the auction experiments are due to expectations-based loss aversion.

• Item Type: MPRA Paper
• Language: English
• Keywords: Auctions; Reference-Dependent Preferences; Loss Aversion; Expectations
• Subjects: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations

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