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

Antonio Rosato and Agnieszka Tymula

No 2016-09, Working Papers from University of Sydney, School of Economics

Abstract: A key prediction of expectations-based reference-dependent preferences and loss aversion in second-price (Vickrey) 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. We develop an experiment with a within-subject design aimed at testing this distinctive comparative statics prediction. Our results are consistent with expectations-based reference-dependent preferences and loss aversion. In real-object auctions, we find that 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.

Keywords: Utility; decision-making; reference point; neuroeconomics (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Loss aversion and competition in Vickrey auctions: Money ain't no good (2019)
Working Paper: Loss Aversion and Competition in Vickrey Auctions: Money Ain't No Good (2016)
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