Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/191539
Authors: 
von Wangenheim, Jonas
Year of Publication: 
2019
Series/Report no.: 
Diskussionsbeiträge 2019/1
Abstract: 
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.
Subjects: 
Vickrey auction
English auction
expectation-based loss aversion
revenue equivalence
dynamic loss aversion
personal equilibrium
JEL: 
D03
D44
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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