Multi-dimensional reference-dependent preferences in sealed-bid auctions – How (most) laboratory experiments differ from the field

• Published in: Games and economic behavior Vol. 68; no. 2; pp. 634 - 645
• Main Authors: Lange, Andreas, Ratan, Anmol
• Format: Journal Article
• Language: English
• Published: Duluth Elsevier Inc 01.03.2010; Elsevier; Academic Press
• Series: Games and Economic Behavior
• Subjects: Auction; Auction Loss aversion Reference dependence Revenue equivalence Laboratory experiments Induced value Field data; Auctions; Bidding; Bids; Comparative analysis; Economic models; Experiments; Field data; Induced value; Laboratories; Laboratory; Laboratory experiments; Loss; Loss aversion; Preferences; Reference dependence; Revenue equivalence; Risk aversion; Strategic behaviour; Studies; Reference dependence; Induced value; Field data; D44; Auction; C91; Revenue equivalence; C93; Laboratory experiments; Loss aversion
• ISSN: 0899-8256; 1090-2473
• DOI: 10.1016/j.geb.2009.08.008

We study bidding behavior in first- and second-price sealed-bid auctions with loss-averse agents. Our model predicts overbidding in first-price induced-value auctions consistent with evidence from most laboratory experiments. Substantially different bidding behavior could result in commodity auctions where money and auction item are consumed along different dimensions of the consumption space. Differences also result in second-price auctions. Our study thereby indicates that transferring qualitative behavioral findings from induced-value laboratory experiments to the field may be problematic if subjects are loss-averse.