Endogenous price expectations as reference points in auctions

Husnain Fateh Ahmad

Journal of Economic Behavior & Organization, 2015, vol. 112, issue C, 46-63

Abstract: The paper models auctions with bidders who have reference dependent preferences and who may be loss averse. The endogenous reference point is defined as either the ex-ante or the interim expected price of the good, depending on whether bidders are naive or sophisticated. Equilibria with consistent reference points are shown to exist and are fully characterised. The model predicts that in equilibrium bidders both overbid and underbid in comparison to the standard risk neutral Nash equilibrium strategies.

Keywords: Auctions; Reference dependence; Consistent reference point (search for similar items in EconPapers)
JEL-codes: D03 D44 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:112:y:2015:i:c:p:46-63

DOI: 10.1016/j.jebo.2015.01.002

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