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Loss aversion and learning to bid

  • Dennis A. V. Dittrich

    ()

  • Werner Güth

    ()

  • Martin 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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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2005-03.

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Length: 52 pages
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Handle: RePEc:esi:discus:2005-03
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