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Loss Aversion and Learning to Bid

  • Dennis A. V. Dittrich
  • Werner Güth
  • Martin G. Kocher
  • Paul Pezanis‐Christou

Bidding challenges learning theories since experiences for the same bid vary stochastically: the same choice can result in a gain or a loss. In such an environment the question arises how the nearly universally documented phenomenon of loss aversion affects the adaptive dynamics. We analyze the impact of loss aversion in a simple auction for different learning theories. Our experimental results suggest that a version of reinforcement learning which accounts for loss aversion fares as well as more sophisticated alternatives.

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Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 79 (2012)
Issue (Month): 314 (04)
Pages: 226-257

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Handle: RePEc:bla:econom:v:79:y:2012:i:314:p:226-257
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