English versus Vickrey auctions with loss averse bidders

Arbeitspapier

Evidence suggests that people evaluate outcomes relative to expectations. I analyze this expectation-based loss aversion (Köszegi and Rabin (2006, 2009)) in the context of dynamic and static auctions, where the reference point is given by the (endogenous) equilibrium outcome. If agents update their reference point during the auction, the arrival of information crucially affects equilibrium behavior. Consequently, I show that - even with independent private values - the Vickrey auction yields strictly higher revenue than the English auction, violating the well known revenue equivalence. Thus, dynamic loss aversion offers a novel explanation for empirically observed differences between these auction formats.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper ; No. 2019/1

Classification and Topics

• Classification: Wirtschaft ; Auctions
• Subject: Vickrey auction ; English auction ; expectation-based loss aversion ; revenue equivalence ; dynamic loss aversion ; personal equilibrium

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): von Wangenheim, Jonas
• Event: Veröffentlichung
• (who): Freie Universität Berlin, School of Business & Economics
• (where): Berlin
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/191539
• URN: urn:nbn:de:kobv:188-refubium-23763-9
• Last update: 10.03.2025, 11:43 AM CET