Loss Aversion and Learning to Bid
40 Pages Posted: 27 Oct 2009
There are 2 versions of this paper
Loss Aversion and Learning to Bid
Loss Aversion and Learning to Bid
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: Suggested Citation
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