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/lp/american-economic-association/detection-identification-and-estimation-of-loss-aversion-evidence-from-ytXE0Jplem
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- Publisher
- American Economic Association
- Copyright
- Copyright © 2014 by the American Economic Association
- Subject
- Articles
- ISSN
- 1945-7685
- eISSN
- 1945-7685
- DOI
- 10.1257/mic.6.1.91
- Publisher site
- See Article on Publisher Site
Abstract
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. (JEL C91, D44, D82 )
Journal
American Economic Journal: Microeconomics – American Economic Association
Published: Feb 1, 2014