IDEAS home Printed from https://ideas.repec.org/p/esi/discus/2005-03.html
   My bibliography  Save this paper

Loss aversion and learning to bid

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: ftp://papers.econ.mpg.de/esi/discussionpapers/2005-03.pdf
    Download Restriction: no
    ---><---

    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

    as
    1. Uri Gneezy & Jan Potters, 1997. "An Experiment on Risk Taking and Evaluation Periods," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 631-645.
    2. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-881, September.
    3. Judith Avrahami & Yaakov Kareev & Werner G³th, 2001. "Predating Predators: An experimental Study," Homo Oeconomicus, Institute of SocioEconomics, vol. 18, pages 337-351.
    4. Anderhub, Vital & Engelmann, Dirk & Guth, Werner, 2002. "An experimental study of the repeated trust game with incomplete information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 197-216, June.
    5. Shlomo Benartzi & Richard H. Thaler, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 73-92.
    6. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    7. 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.
    8. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
    9. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June.
    10. Werner G¸th & Radosveta Ivanova-Stenzel & Manfred K–nigstein & Martin Strobel, 2003. "Learning to bid - an experimental study of bid function adjustments in auctions and fair division games," Economic Journal, Royal Economic Society, vol. 113(487), pages 477-494, April.
    11. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    12. Ball, Sheryl B. & Bazerman, Max H. & Carroll, John S., 1991. "An evaluation of learning in the bilateral winner's curse," Organizational Behavior and Human Decision Processes, Elsevier, vol. 48(1), pages 1-22, February.
    13. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    14. Armantier, Olivier, 2004. "Does observation influence learning?," Games and Economic Behavior, Elsevier, vol. 46(2), pages 221-239, February.
    15. Garvin, Susan & Kagel, John H., 1994. "Learning in common value auctions: Some initial observations," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 351-372, December.
    16. Teck H Ho & Colin Camerer & Juin-Kuan Chong, 2003. "Functional EWA: A one-parameter theory of learning in games," Levine's Working Paper Archive 506439000000000514, David K. Levine.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.
    3. Oliver Kirchkamp & Wladislaw Mill, 2019. "Spite vs. risk: explaining overbidding," CESifo Working Paper Series 7631, CESifo.
    4. Werner Güth & Kerstin Pull & Manfred Stadler & Alexandra K. Zaby, 2019. "Compulsory Disclosure of Private Information: Theoretical and Experimental Results for the Acquiring-a-Company Game," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(3), pages 502-523.
    5. Jason Shachat & Lijia Wei, 2012. "Procuring Commodities: First-Price Sealed-Bid or English Auctions?," Marketing Science, INFORMS, vol. 31(2), pages 317-333, March.
    6. 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.
    7. 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.
    8. 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.
    9. repec:wyi:journl:002158 is not listed on IDEAS
    10. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gijs Kuilen & Peter Wakker, 2006. "Learning in the Allais paradox," Journal of Risk and Uncertainty, Springer, vol. 33(3), pages 155-164, December.
    2. Gerlinde Fellner & Matthias Sutter, 2009. "Causes, Consequences, and Cures of Myopic Loss Aversion - An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 119(537), pages 900-916, April.
    3. Gerlinde Fellner & Matthias Sutter, 2009. "Causes, Consequences, and Cures of Myopic Loss Aversion – An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 119(537), pages 900-916, April.
    4. Simon Gaechter & Eric Johnson & Andreas Herrmann, 2007. "Individual-Level Loss Aversion In Riskless And Risky Choices," Discussion Papers 2007-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    5. Colin Camerer, 1998. "Bounded Rationality in Individual Decision Making," Experimental Economics, Springer;Economic Science Association, vol. 1(2), pages 163-183, September.
    6. Teck H. Ho & Noah Lim & Colin Camerer, 2005. "Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics," Levine's Bibliography 784828000000000476, UCLA Department of Economics.
    7. Daniela Gl�tzle-R�tzler & Matthias Sutter & Achim Zeileis, 2013. "No myopic loss aversion in adolescents? � An experimental note," Working Papers 2013-07, Faculty of Economics and Statistics, University of Innsbruck.
    8. Glätzle-Rützler, Daniela & Sutter, Matthias & Zeileis, Achim, 2015. "No myopic loss aversion in adolescents? – An experimental note," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 169-176.
    9. Thomas Epper & Helga Fehr-Duda, 2012. "The missing link: unifying risk taking and time discounting," ECON - Working Papers 096, Department of Economics - University of Zurich, revised Oct 2018.
    10. Enrique Fatás & Francisca Jiménez & Antonio Morales, 2011. "Controlling for initial endowment and experience in binary choice tasks," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 227-243, December.
    11. Stivers, Adam & Tsang, Ming & Deaves, Richard & Hoffer, Adam, 2020. "Behavior when the chips are down: An experimental study of wealth effects and exchange media," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
    12. Horst Zank, 2010. "On probabilities and loss aversion," Theory and Decision, Springer, vol. 68(3), pages 243-261, March.
    13. Lefebvre, Mathieu & Vieider, Ferdinand M., 2014. "Risk taking of executives under different incentive contracts: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 27-36.
    14. Eriksen, Kristoffer W. & Kvaløy, Ola, 2014. "Myopic risk-taking in tournaments," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 37-46.
    15. Jakusch, Sven Thorsten, 2017. "On the applicability of maximum likelihood methods: From experimental to financial data," SAFE Working Paper Series 148, Leibniz Institute for Financial Research SAFE.
    16. Jonathan Chapman & Erik Snowberg & Stephanie Wang & Colin Camerer, 2018. "Loss Attitudes in the U.S. Population: Evidence from Dynamically Optimized Sequential Experimentation (DOSE)," NBER Working Papers 25072, National Bureau of Economic Research, Inc.
    17. Epper, Thomas & Fehr-Duda, Helga, 2017. "A Tale of Two Tails: On the Coexistence of Overweighting and Underweighting of Rare Extreme Events," Economics Working Paper Series 1705, University of St. Gallen, School of Economics and Political Science.
    18. Julius Pahlke & Sebastian Strasser & Ferdinand Vieider, 2015. "Responsibility effects in decision making under risk," Journal of Risk and Uncertainty, Springer, vol. 51(2), pages 125-146, October.
    19. Robin Cubitt & Gijs van de Kuilen & Sujoy Mukerji, 2020. "Discriminating Between Models of Ambiguity Attitude: a Qualitative Test," Journal of the European Economic Association, European Economic Association, vol. 18(2), pages 708-749.
    20. Hopfensitz, Astrid & Wranik, Tanja, 2008. "Psychological and environmental determinants of myopic loss aversion," MPRA Paper 9305, University Library of Munich, Germany.

    More about this item

    Keywords

    loss aversion; bidding; auction; experiment; learning;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:esi:discus:2005-03. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Karin Richter) The email address of this maintainer does not seem to be valid anymore. Please ask Karin Richter to update the entry or send us the correct email address. General contact details of provider: https://edirc.repec.org/data/mpiewde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.