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Loss aversion and learning to bid

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  • Dennis A. V. Dittrich

    ()

  • Werner Güth

    ()

  • Martin Kocher
  • Paul Pezanis-Christou

Abstract

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.

Suggested Citation

  • Dennis A. V. Dittrich & Werner Güth & Martin Kocher & Paul Pezanis-Christou, "undated". "Loss aversion and learning to bid," Papers on Strategic Interaction 2005-03, Max Planck Institute of Economics, Strategic Interaction Group.
  • Handle: RePEc:esi:discus:2005-03
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    File URL: ftp://papers.econ.mpg.de/esi/discussionpapers/2005-03.pdf
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    Other versions of this item:

    • Dennis A. V. Dittrich & Werner Güth & Martin G. Kocher & Paul Pezanis‐Christou, 2012. "Loss Aversion and Learning to Bid," Economica, London School of Economics and Political Science, vol. 79(314), pages 226-257, April.

    References listed on IDEAS

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    10. Albers, Wulf & Vogt, Bodo, 2017. "The selection of mixed strategies in 2 x 2 bimatrix games," Center for Mathematical Economics Working Papers 268, Center for Mathematical Economics, Bielefeld University.
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    Citations

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    Cited by:

    1. Güth, Werner & Kocher, Martin G., 2014. "More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 396-409.
    2. Dittrich, Dennis A.V. & Büchner, Susanne & Kulesz, Micaela M., 2015. "Dynamic repeated random dictatorship and gender discrimination," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 55(C), pages 81-90.
    3. Jason Shachat & Lijia Wei, 2012. "Procuring Commodities: First-Price Sealed-Bid or English Auctions?," Marketing Science, INFORMS, vol. 31(2), pages 317-333, March.
    4. Werner Güth & Kerstin Pull & Manfred Stadler & Alexandra K. Zaby, 2017. "Blindfolded vs. Informed Ultimatum Bargaining – A Theoretical and Experimental Analysis," German Economic Review, Verein für Socialpolitik, vol. 18(4), pages 444-467, November.
    5. Thorsten Chmura & Werner Güth, 2011. "The Minority of Three-Game: An Experimental and Theoretical Analysis," Games, MDPI, Open Access Journal, vol. 2(3), pages 1-22, September.
    6. Zaby, Alexandra & Güth, Werner & Pull, Kerstin & Stadler, Manfred, 2014. "Compulsory Disclosure of Private Information - Theoretical and Experimental Results for the Acquiring-a-Company Game," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100520, Verein für Socialpolitik / German Economic Association.
    7. repec:wyi:journl:002158 is not listed on IDEAS
    8. Nadine Chlass & Jens J. Krueger, 2007. "Small Sample Properties of the Wilcoxon Signed Rank Test with Discontinuous and Dependent Observations," Jena Economic Research Papers 2007-032, Friedrich-Schiller-University Jena.
    9. Judith Avrahami & Werner Güth & Yaakov Kareev, 2005. "Games of Competition in a Stochastic Environment," Theory and Decision, Springer, vol. 59(4), pages 255-294, December.

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    Keywords

    loss aversion; bidding; auction; experiment; learning;

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