Download this Paper Open PDF in Browser

Is Overbidding in Online Auctions the Result of a Pseudo-Endowment Effect?

24 Pages Posted: 8 Jun 2005  

James R. Wolf Jr.

Illinois State University

Hal R. Arkes

Ohio State University - Department of Psychology

Waleed A. Muhanna

The Ohio State University - Fisher College of Business

Date Written: November 3, 2005

Abstract

Actual possession of an item has been shown to increase an owner's valuation of it, a phenomenon termed the endowment effect (Thaler, 1980). We hypothesize that temporarily being the high bidder during an auction induces a pseudo-endowment effect. This effect may foster attachment to an item during the auction and thus promote overbidding. We examine this effect in two studies. In the first study, we examined bids from 1088 eBay Motors' passenger vehicle auctions to test for evidence of the pseudo-endowment effect and for evidence that this effect is reduced by market experience. Pseudo-endowment is measured using two proxies: the amount of time a person has participated in an individual eBay Motors' passenger vehicle auction and the aggregated duration that a bidder is listed as the high bidder for that auction. Both proxies are found to be positively and significantly associated with the probability that the bidder will rebid in a single second-price auction. We further find that the pseudo-endowment effect is more pronounced than the effects of auction fever. We also find that these non-normative effects are reduced by market experience. The second study is a variation of the classic mug experiment in which we control for opponent effects. Consistent with findings of the field study, we found that the duration of examining an item positively influenced participants' bids for the item.

Keywords: Auctions, behavioral economics, endowment effect, consumer behavior

JEL Classification: D1, D12, D80

Suggested Citation

Wolf, James R. and Arkes, Hal R. and Muhanna, Waleed A., Is Overbidding in Online Auctions the Result of a Pseudo-Endowment Effect? (November 3, 2005). Available at SSRN: https://ssrn.com/abstract=735464 or http://dx.doi.org/10.2139/ssrn.735464

James R. Wolf Jr. (Contact Author)

Illinois State University ( email )

Campus Box 5150
Normal, IL 61761
United States

Hal R. Arkes

Ohio State University - Department of Psychology ( email )

240N Lazenby Hall
1885 Neil Avenue
Columbus, OH 43210
United States
614-292-1592 (Phone)
614-688-3984 (Fax)

Waleed A. Muhanna

The Ohio State University - Fisher College of Business ( email )

Dept. Accounting & Management Information Systems
2100 Neil Avenue
Columbus, OH 43210
United States
614-292-3808 (Phone)
614-292-2118 (Fax)

Paper statistics

Downloads
567
Rank
39,147
Abstract Views
4,290