Loss aversion and competition in Vickrey auctions: Money ain't no good
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Open Access
Type
ArticleAbstract
A key prediction of expectations-based reference-dependent preferences and loss aversion in second-price auctions with private values is that the number of bidders should affect bids in auctions for real objects but not in auctions with induced monetary values. In order to test ...
See moreA key prediction of expectations-based reference-dependent preferences and loss aversion in second-price auctions with private values is that the number of bidders should affect bids in auctions for real objects but not in auctions with induced monetary values. In order to test this distinctive comparative statics prediction, we develop an experiment where subjects bid in multiple auctions for real objects as well as auctions with induced values, each time facing a different number of rivals. Our results are broadly consistent with expectations-based reference-dependent preferences and loss aversion. We find that in real-object auctions bids decline with the intensity of competition whereas in induced-value auctions, instead, bids do not vary with the intensity of competition. Our results suggest that bidders may behave differently in real-object auctions than in induced-value ones, casting some doubt on the extent to which findings from induced-value laboratory experiments can be transferred to the field.
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See moreA key prediction of expectations-based reference-dependent preferences and loss aversion in second-price auctions with private values is that the number of bidders should affect bids in auctions for real objects but not in auctions with induced monetary values. In order to test this distinctive comparative statics prediction, we develop an experiment where subjects bid in multiple auctions for real objects as well as auctions with induced values, each time facing a different number of rivals. Our results are broadly consistent with expectations-based reference-dependent preferences and loss aversion. We find that in real-object auctions bids decline with the intensity of competition whereas in induced-value auctions, instead, bids do not vary with the intensity of competition. Our results suggest that bidders may behave differently in real-object auctions than in induced-value ones, casting some doubt on the extent to which findings from induced-value laboratory experiments can be transferred to the field.
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Date
2019Source title
Games and Economic BehaviorVolume
115Publisher
ElsevierFunding information
ARC DE180100190Licence
Creative Commons Attribution-NonCommercial-NoDerivatives 4.0Rights statement
© 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/Faculty/School
Faculty of Arts and Social Sciences, School of EconomicsShare