 Loss aversion and sunk cost sensitivity in all-pay auctions for charity: Theory and experimentsJournal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), 2020, vol. 84, issue C Abstract: This paper theoretically and experimentally studies the role of two behavioral biases in all-pay auctions for charity. The theory is developed to predict the effect of loss aversion in the first-price all-pay auction and sunk cost sensitivity in the war of attrition. Using controlled laboratory experiments, auction treatments are designed to test for the presence of these biases. In support of the theory, the results indicate that revenues in incremental bidding mechanisms such as the war of attrition rely on bidders who are sunk cost sensitive. It is shown that this behavioral response can be curbed significantly with a commitment device. Likewise, the results of the experimental first-price all-pay auctions find evidence of loss aversion, which reduces bidders’ average bid. These findings help explain the inconsistencies in revenues from previous all-pay auction studies and indicate a mechanism preference based on the distribution of these behavioral characteristics. Keywords: Auctions; Market design; Charitable giving (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:soceco:v:84:y:2020:i:c:s2214804319301831 DOI: 10.1016/j.socec.2019.101486 Access Statistics for this article Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) is currently edited by Pablo Brañas Garza More articles in Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics) from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.