American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Detection, Identification, and Estimation of Loss Aversion: Evidence from an Auction Experiment
American Economic Journal: Microeconomics
vol. 6,
no. 1, February 2014
(pp. 91–133)
Abstract
We provide a novel experimental auction design, in which (i) an exogenous decrease in the probability of winning, conditional on the bid, reduces the optimal bid of a loss averse agent whose reference point is expectations based; (ii) observed bid distributions uniquely identify the participants' latent value distribution and loss-aversion parameter. Experimental evidence affirms the presence of such reference points. We show that at the estimated magnitudes of loss aversion, (a) conventional Becker, DeGroot, and Marschak (1964) experiments may lead to large biases in estimated willingness to pay (which our design can correct for); and (b) first-price auctions may fetch moderately higher revenue, compared with second-price auctions.Citation
Banerji, A., and Neha Gupta. 2014. "Detection, Identification, and Estimation of Loss Aversion: Evidence from an Auction Experiment." American Economic Journal: Microeconomics, 6 (1): 91–133. DOI: 10.1257/mic.6.1.91Additional Materials
JEL Classification
- C91 Design of Experiments: Laboratory, Individual
- D44 Auctions
- D82 Asymmetric and Private Information; Mechanism Design
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