Loss Aversion and Learning to Bid

40 Pages Posted: 27 Oct 2009

See all articles by Dennis Alexis Valin Dittrich

Dennis Alexis Valin Dittrich

Touro College Berlin; Bremen International Graduate School of Social Sciences (BIGSSS)

Werner Güth

Max Planck Institute for Research on Collective Goods; Luiss Guido Carli University

Martin G. Kocher

University of Vienna

Paul Pezanis-Christou

U. of Adelaide School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 26, 2009

Abstract

Bidding challenges learning theories, since 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 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. Our experimental results suggest that individual learning dynamics are highly heterogeneous and affected by loss aversion to different degrees. In any case, the experiment shows that loss aversion is not specific to rare decision making.

Keywords: loss aversion, bidding, auction, experiment, EWA learning

JEL Classification: C91, D44, D83

Suggested Citation

Dittrich, Dennis Alexis Valin and Güth, Werner and Kocher, Martin G. and Pezanis-Christou, Paul, Loss Aversion and Learning to Bid (October 26, 2009). Available at SSRN: https://ssrn.com/abstract=1494468 or http://dx.doi.org/10.2139/ssrn.1494468

Dennis Alexis Valin Dittrich (Contact Author)

Touro College Berlin ( email )

Am Rupenhorn 5
Berlin, 14055
Germany

Bremen International Graduate School of Social Sciences (BIGSSS) ( email )

Wiener Strasse
FVG-West
Bremen, DE 28215
Germany

Werner Güth

Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Luiss Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

Martin G. Kocher

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Paul Pezanis-Christou

U. of Adelaide School of Economics

Adelaide
Australia

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