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Loss Aversion, Expectations and Anchoring in the BDM Mechanism

Author

Listed:
  • Achilleas Vassilopoulos

    (ICRE8: International Centre for Research on the Environment and the Economy)

  • Andreas C. Drichoutis

    (Department of Agricultural Economics & Rural Development, Agricultural University of Athens)

  • Rodolfo M. Nayga, Jr

    (Department of Agricultural Economics & Agribusiness, University of Arkansas)

Abstract

We present the results of an economic laboratory experiment that tests behavioral biases that have been associated with the BDM mechanism. By manipulating the highest random competing bid, the maximum possible loss, the distribution of prices and the elicitation format, we attempt to disentangle the e ects of reference-dependence, expectations as well as price and loss anchoring on subjects' bids. The results show that bids are a ected by expectations and anchoring on the highest price but not by anchoring on the maximum possible loss. In addition, results are supportive of the no-loss-in-buying hypothesis of Novemsky and Kahneman (2005)

Suggested Citation

  • Achilleas Vassilopoulos & Andreas C. Drichoutis & Rodolfo M. Nayga, Jr, 2018. "Loss Aversion, Expectations and Anchoring in the BDM Mechanism," Working Papers 2018-1, Agricultural University of Athens, Department Of Agricultural Economics.
    • Handle: RePEc:aua:wpaper:2018-1
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    Cited by:

    1. Canavari, Maurizio & Drichoutis, Andreas C. & Lusk, Jayson L. & Nayga, Rodolfo, 2018. "How to run an experimental auction: A review of recent advances," MPRA Paper 89715, University Library of Munich, Germany.
    2. Gosnell, Greer & McCoy, Daire, 2023. "Market failures and willingness to accept smart meters: Experimental evidence from the UK," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).
    3. Daniele Asioli & Adriana Mignani & Frode Alfnes, 2021. "Quick and easy? Respondent evaluations of the Becker–DeGroot–Marschak and multiple price list valuation mechanisms," Agribusiness, John Wiley & Sons, Ltd., vol. 37(2), pages 215-234, April.
    4. Drichoutis, Andreas C. & Nayga, Rodolfo M., 2022. "Game form recognition in preference elicitation, cognitive abilities, and cognitive load," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 49-65.

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    More about this item

    Keywords

    Becker-DeGroot-Marschak (BDM) mechanism; expectations; anchoring; valuation; experiment.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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