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Auctions with loss‐averse bidders

Author

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  • Roland Eisenhuth
  • Mara Grunewald

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.

Suggested Citation

  • Roland Eisenhuth & Mara Grunewald, 2020. "Auctions with loss‐averse bidders," International Journal of Economic Theory, The International Society for Economic Theory, vol. 16(2), pages 129-152, June.
    • Handle: RePEc:bla:ijethy:v:16:y:2020:i:2:p:129-152
    DOI: 10.1111/ijet.12189
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    Citations

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    Cited by:

    1. Karle, Heiko & Peitz, Martin, 2017. "De-targeting: Advertising an assortment of products to loss-averse consumers," European Economic Review, Elsevier, vol. 95(C), pages 103-124.
    2. Bettina Klose & Paul Schweinzer, 2022. "Auctioning risk: the all-pay auction under mean-variance preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(4), pages 881-916, June.
    3. von Wangenheim, Jonas, 2019. "English versus Vickrey auctions with loss averse bidders," Discussion Papers 2019/1, Free University Berlin, School of Business & Economics.
    4. Benjamin Balzer & Antonio Rosato, 2018. "Expectations-Based Loss Aversion in Common-Value Auctions: Extensive vs. Intensive Risk," Working Paper Series 50, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    5. von Wangenheim, Jonas, 2021. "English versus Vickrey auctions with loss-averse bidders," Journal of Economic Theory, Elsevier, vol. 197(C).
    6. Benjamin Balzer & Antonio Rosato, 2021. "Expectations-Based Loss Aversion in Auctions with Interdependent Values: Extensive vs. Intensive Risk," Management Science, INFORMS, vol. 67(2), pages 1056-1074, February.
    7. Roland Eisenhuth, 2019. "Reference-dependent mechanism design," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(1), pages 77-103, May.
    8. Fu, Qiang & Wang, Xiruo & Zhu, Yuxuan, 2021. "Multi-prize contests with expectation-based loss-averse players," Economics Letters, Elsevier, vol. 205(C).

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