Template-Type: ReDIF-Paper 1.0
Title: Dutch vs. First-Price Auctions With Expectations-Based Loss-Averse Bidders
Author-Name: Benjamin Balzer
Author-Email: 
Author-Name: Antonio Rosato
Author-Email: 
Author-Name: Jonas von Wangenheim
Author-Email: jwangenheim@uni-bonn.de

Classification-JEL: D44, D81, D82
Keywords: Loss Aversion, Dutch Auctions, Revenue Equivalence, Personal Equilibrium

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 ratio-
nalizing the use of descending-price mechanisms by sellers in this field.

Note: 
Length: 34
Creation-Date: 2021-07
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp314
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2021_314