Dutch vs. first-price auctions with expectations-based loss-averse bidders

Balzer, B; Rosato, A; von Wangenheim, J

Dutch vs. first-price auctions with expectations-based loss-averse bidders

Balzer, B

Rosato, A von Wangenheim, J

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Publisher:: Elsevier
Publication Type:: Journal Article
Citation:: Journal of Economic Theory, 2022, 205, pp. 1-32
Issue Date:: 2022-10-01

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Field	Value	Language
dc.contributor.author	Balzer, B https://orcid.org/0000-0001-9508-8487
dc.contributor.author	Rosato, A
dc.contributor.author	von Wangenheim, J
dc.date.accessioned	2023-01-18T03:45:47Z
dc.date.available	2023-01-18T03:45:47Z
dc.date.issued	2022-10-01
dc.identifier.citation	Journal of Economic Theory, 2022, 205, pp. 1-32
dc.identifier.issn	0022-0531
dc.identifier.issn	1095-7235
dc.identifier.uri	http://hdl.handle.net/10453/165101
dc.description.abstract	We study Dutch and first-price auctions with expectations-based loss-averse bidders and show that the strategic equivalence between these formats no longer holds. Intuitively, as the Dutch auction unfolds, a bidder becomes more optimistic about her chances of winning; this stronger “attachment” effect pushes her to bid more aggressively than in the first-price auction. Thus, Dutch auctions raise more revenue than first-price ones. Indeed, the Dutch auction raises the most revenue among standard auction formats. Our results imply that dynamic mechanisms that make bidders more optimistic raise more revenue, thereby rationalizing the use of descending-price mechanisms by sellers in the field.
dc.language	English
dc.publisher	Elsevier
dc.relation	http://purl.org/au-research/grants/arc/DE180100190
dc.relation.ispartof	Journal of Economic Theory
dc.relation.isbasedon	10.1016/j.jet.2022.105545
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	1401 Economic Theory, 1499 Other Economics
dc.subject.classification	Economic Theory
dc.title	Dutch vs. first-price auctions with expectations-based loss-averse bidders
dc.type	Journal Article
utslib.citation.volume	205
utslib.for	1401 Economic Theory
utslib.for	1499 Other Economics
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access	*
pubs.consider-herdc	false
dc.date.updated	2023-01-18T03:45:43Z
pubs.publication-status	Published
pubs.volume	205

Abstract:

We study Dutch and first-price auctions with expectations-based loss-averse bidders and show that the strategic equivalence between these formats no longer holds. Intuitively, as the Dutch auction unfolds, a bidder becomes more optimistic about her chances of winning; this stronger “attachment” effect pushes her to bid more aggressively than in the first-price auction. Thus, Dutch auctions raise more revenue than first-price ones. Indeed, the Dutch auction raises the most revenue among standard auction formats. Our results imply that dynamic mechanisms that make bidders more optimistic raise more revenue, thereby rationalizing the use of descending-price mechanisms by sellers in the field.

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http://hdl.handle.net/10453/165101