How Losses affect Bidding Behavior in Vickrey Auctions
AbstractWe use Vickrey uniform auctions to provide an indirect robustness test of the endowment effect. Our panel data promotes two results: (1) evidence of the endowment effect exists in that risk seeking behavior following losses is less severe for 'out of pocket' losses as opposed to foregone gain. We did not find support for the prediction that bidders recoil from future losses following a realized loss (i.e., become more risk averse); and (2) a form of gamblers fallacy termed the escalation of commitment better explains bidding behavior for inexperienced bidders—risk seeking bidding behavior is observed following a loss. But as bidders gain experience the escalation of commitment is attenuated for “out of pocket” losses but not for foregone gains.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 34554.
Date of creation: 2011
Date of revision:
Uniform Auction; Vickrey; Losses; opportunity cost; endowment effect; escalation of commitment;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-14 (All new papers)
- NEP-EXP-2011-11-14 (Experimental Economics)
- NEP-UPT-2011-11-14 (Utility Models & Prospect Theory)
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