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Dutch versus First-Price Auctions with Dynamic Expectations-Based Reference-Dependent Preferences

Author

Listed:
  • Benjamin Balzer

    (University of Technology Sydney)

  • Antonio Rosato

    (University of Technology Sydney)

  • Jonas von Wangenheim

    (University of Bonn, Germany)

Abstract

We study the behavior of expectations-based loss-averse bidders in Dutch and first-price auctions with independent private values. With loss-averse preferences, the strategic equivalence between these formats no longer holds. Intuitively, as the Dutch auction unfolds, a bidder becomes more optimistic about her chances of winning; this stronger "attachment" effect pushes her to bid more aggressively than in the first-price auction. Thus, Dutch auctions raise more revenue than first-price ones. Indeed, we show that the Dutch auction raises the most revenue among standard auction formats. Our results imply that with expectations- based reference-dependent preferences sequential mechanisms might outperform static ones.

Suggested Citation

  • Benjamin Balzer & Antonio Rosato & Jonas von Wangenheim, 2020. "Dutch versus First-Price Auctions with Dynamic Expectations-Based Reference-Dependent Preferences," Working Paper Series 2020/05, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ecowps:2020/05
    as

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    File URL: https://www.uts.edu.au/sites/default/files/2020-07/Antonio%20Rosato%20WP%20final_0_0.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Senran Lin, 2021. "Buy It Now or Later, or Not: Loss Aversion in Advance Purchasing," Papers 2110.14929, arXiv.org, revised Feb 2024.

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    More about this item

    Keywords

    Reference-Dependent Preferences; Loss Aversion; Dutch Auctions; Revenue Equivalence; Personal Equilibrium;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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