Expectations-Based Loss Aversion in Auctions with Interdependent Values: Extensive vs. Intensive Risk

We analyze the bidding behavior of expectations-based loss-averse bidders in auctions with interdependent values. emphasize difference between risk face over whether they win auction (extensive risk) and value prize conditional on winning (intensive risk). The extensive creates an “attachment” effect, whereas intensive operates via a “comparison” effect. How react to these different risks depends incorporate their bid into reference point. Under “unacclimating personal equilibrium” (UPE), where keep expectations fixed when choosing bids, both induce them more aggressively. Moreover, are exposed “winner’s curse” seller can attain higher revenue by hiding information order leverage risk. By contrast, under “choice-acclimating (CPE), determines lottery outcome lottery, “precautionary bidding” effect that pushes behave less aggressively; this is reinforced or undermined bidder’s likelihood auction. Furthermore, aggressive than UPE be subject “loser’s curse.” Yet, committing aggressively, such as engaging proxy bidding, better off CPE UPE. This paper was accepted Ilia Tsetlin, decision analysis.