Loss Aversion and Learning to Bid

32 Pages Posted: 28 Mar 2012

See all articles by Dennis Alexis Valin Dittrich

Dennis Alexis Valin Dittrich

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

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Martin G. Kocher

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Göteborg University - School of Business, Economics and Law; Queensland University of Technology - School of Economics and Finance

Paul Pezanis-Christou

U. of Adelaide School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2012

Abstract

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.

Suggested Citation

Dittrich, Dennis Alexis Valin and Güth, Werner and Kocher, Martin G. and Pezanis-Christou, Paul, Loss Aversion and Learning to Bid (April 2012). Economica, Vol. 79, Issue 314, pp. 226-257, 2012. Available at SSRN: https://ssrn.com/abstract=2030116 or http://dx.doi.org/10.1111/j.1468-0335.2011.00892.x

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 of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Martin G. Kocher

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Paul Pezanis-Christou

U. of Adelaide School of Economics

Adelaide
Australia

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