Loss aversion in sequential auctions

Antonio Rosato

Theoretical Economics, 2023, vol. 18, issue 2

Abstract: I analyze sequential auctions with expectations-based loss-averse bidders who have independent private values and unit demand. Equilibrium bids are history dependent and subject to a discouragement effect: the higher the winning bid in the current round is, the less aggressive the bids of the remaining bidders in the next round. Moreover, because they experience a loss in each round in which they fail to obtain an object, bidders are willing to pay a premium in order to win sooner rather than later. This desire to win earlier leads prices to decline in equilibrium. I also show how various disclosure policies regarding the outcome of earlier auctions affect equilibrium bids, and that sequential and simultaneous auctions are neither bidder-payoff equivalent nor revenue equivalent.

Keywords: Loss aversion; sequential auctions; afternoon effect (search for similar items in EconPapers)
JEL-codes: D03 D44 D81 D82 (search for similar items in EconPapers)
Date: 2023-05-11
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Citations: View citations in EconPapers (1)

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