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Loss aversion and learning to bid

  • Dittrich, Dennis Alexis Valin
  • Güth, Werner
  • Kocher, Martin G.
  • Pezanis-Christou, Paul

Bidding challenges learning theories. Even with the same bid, experiences vary stochastically: the same choice can result in either a gain or a loss. In such an environment, the question arises of how the nearly universally documented phenomenon of loss aversion affects the adaptive dynamics. We analyse the impact of loss aversion in a simple auction using the experienced-weighted attraction model of learning. Our experimental results suggest that individual learning dynamics are highly heterogeneous and affected by loss aversion to different degrees. Apart from that, the experiment shows that loss aversion is not specific to rare decision-making.

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Paper provided by University of Munich, Department of Economics in its series Munich Reprints in Economics with number 18205.

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Date of creation: 2012
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Publication status: Published in Economica 314 79(2012): pp. 226-257
Handle: RePEc:lmu:muenar:18205
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