Auctions with loss‐averse bidders

Roland Eisenhuth and Mara Grunewald

International Journal of Economic Theory, 2020, vol. 16, issue 2, 129-152

Abstract: If bidders consider gains and losses in the context of whether they receive the object or not and how much they pay separately, the expected revenue is higher in the all‐pay auction than in the first‐price auction; if they consider gains and losses over the entire risk‐neutral payoff, this revenue ranking is reversed. In laboratory experiments, we auction money and a real object: the average revenue is significantly higher in the first‐price auction than in the all‐pay auction, suggesting that bidders behave according to wide and not narrow bracketing of gains and losses in both auction settings.

Date: 2020
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