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Auctions with loss‐averse bidders
Author(s) -
Eisenhuth Roland,
Grunewald Mara
Publication year - 2020
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/ijet.12189
Subject(s) - microeconomics , economics , vickrey–clarke–groves auction , vickrey auction , multiunit auction , revenue equivalence , common value auction , english auction , revenue , context (archaeology) , auction theory , dutch auction , finance , paleontology , biology
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.