On the equivalence of optimal mechanisms with loss and disappointment aversion

Jean-Michel Benkert

Economics Letters, 2022, vol. 214, issue C

Abstract: We consider a standard, quasi-linear mechanism design setting in which agents’ outcomes consist of a binary part and a transfer, thus encompassing applications such as auctions, bilateral trade or public good provision. We augment preferences by allowing for loss aversion (Kőszegi and Rabin, 2007) and disappointment aversion (Bell, 1985; Loomes and Sugden, 1986). While the preferences induced by these models only have a trivial intersection given by classical expected utility (Masatlioglu and Raymond, 2016), we show that the optimal mechanisms for the two types of preferences are equivalent across a broad range of problems and thus display a remarkable robustness.

Keywords: Mechanism design; Robustness; Loss aversion; Disappointment aversion (search for similar items in EconPapers)
JEL-codes: D01 D02 D82 D90 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:214:y:2022:i:c:s0165176522000878

DOI: 10.1016/j.econlet.2022.110428

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