Detection, Identification, and Estimation of Loss Aversion: Evidence from an Auction Experiment

2014 ◽  
Vol 6 (1) ◽  
pp. 91-133 ◽  
Author(s):  
A. Banerji ◽  
Neha Gupta
Keyword(s):  
Willingness To Pay ◽  
Experimental Evidence ◽  
Loss Aversion ◽  
Reference Point ◽  
Value Distribution ◽  
Reference Points ◽  
Experimental Auction ◽  
Auction Design ◽  
Second Price Auctions

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)

scholarly journals Loss Aversion and Consumption Choice: Theory and Experimental Evidence

2015 ◽  
Vol 7 (2) ◽  
pp. 101-120 ◽  
Author(s):  
Heiko Karle ◽  
Georg Kirchsteiger ◽  
Martin Peitz
Keyword(s):  
Experimental Evidence ◽  
Loss Aversion ◽  
Consumer Choice ◽  
Rational Expectations ◽  
Choice Theory ◽  
Choice Model ◽  
Reference Points ◽  
Price Uncertainty ◽  
Theoretical Predictions

We analyze a consumer-choice model with price uncertainty, loss aversion, and expectation-based reference points. The implications of this model are tested in an experiment in which participants have to make a consumption choice between two sandwiches. Participants differ in their reported taste for the two sandwiches and in their degree of loss aversion, which we measure separately. We find that more-loss-averse participants are more likely to opt for the cheaper sandwich, in line with theoretical predictions. The estimates in the model with rational expectations are slightly more significant than those with naïve expectations. (JEL D11, D12, D84, M31)

scholarly journals Subgame Perfect Equilibrium in the Rubinstein Bargaining Game with Loss Aversion

Complexity ◽  
2019 ◽  
Vol 2019 ◽  
pp. 1-23 ◽  
Author(s):  
Zhongwei Feng ◽  
Chunqiao Tan
Keyword(s):  
Loss Aversion ◽  
Reference Point ◽  
Bargaining Power ◽  
Subgame Perfect Equilibrium ◽  
Reference Points ◽  
Bargaining Game ◽  
The Other ◽  
Nash Bargaining ◽  
Perfect Equilibrium ◽  
High Share

Rubinstein bargaining game is extended to incorporate loss aversion, where the initial reference points are not zero. Under the assumption that the highest rejected proposal of the opponent last periods is regarded as the associated reference point, we investigate the effect of loss aversion and initial reference points on subgame perfect equilibrium. Firstly, a subgame perfect equilibrium is constructed. And its uniqueness is shown. Furthermore, we analyze this equilibrium with respect to initial reference points, loss aversion coefficients, and discount factor. It is shown that one benefits from his opponent’s loss aversion coefficient and his own initial reference point and is hurt by loss aversion coefficient of himself and the opponent’s initial reference point. Moreover, it is found that, for a player who has a higher level of loss aversion than the other, although this player has a higher initial reference point than the opponent, this player can(not) obtain a high share of the pie if the level of loss aversion of this player is sufficiently low (high). Finally, a relation with asymmetric Nash bargaining is established, where player’s bargaining power is negatively related to his own loss aversion and the initial reference point of the other and positively related to loss aversion of the opponent and his own initial reference point.

scholarly journals Can reference points explain wage rigidity? Experimental evidence

2021 ◽  
Vol 55 (1) ◽  
Author(s):  
Christian Koch
Keyword(s):  
Laboratory Experiment ◽  
Experimental Evidence ◽  
Reference Point ◽  
Good Reason ◽  
Reference Points ◽  
Experimental Results ◽  
Wage Rigidity ◽  
Fair Wage ◽  
Wage Cuts

AbstractI examine whether reference points can provide an explanation for rigid wages in recessions. Even though a recession provides a good reason to adjust wages downward, workers’ perception of a “fair wage” may depend on their previous wage, their reference point. Using a laboratory experiment, I test this idea by varying whether initially concluded contracts—and their stipulated wages—can serve as reference points. My experimental results show that with initial contracts workers punish wage cuts even in recessions, leading to considerable more rigid wages. Surprisingly, this is even true without an “objective” justification to feel entitled to initial contracts.

Deciding When to Quit: Reference-Dependence over Slot Machine Outcomes

2015 ◽  
Vol 105 (5) ◽  
pp. 366-370 ◽  
Author(s):  
Jaimie W. Lien ◽  
Jie Zheng
Keyword(s):  
Loss Aversion ◽  
Reference Point ◽  
Slot Machine ◽  
Status Quo ◽  
Reference Points ◽  
Reference Dependence ◽  
Diminishing Sensitivity

We conduct tests for reference dependent loss aversion using slot machine gamblers' decisions on when to quit playing for a visit to a casino. Evidence for a lagged status-quo reference point is found in the aggregate, while endogenously determined reference points are found when conditioning on betting intensity choices. Significant deviations from the distributions implied by random quitting support the loss aversion and diminishing sensitivity hypotheses.

Cognitive Reflection Effects on Time Discounting

2018 ◽  
Vol 39 (2) ◽  
pp. 99-106 ◽  
Author(s):  
Michał Białek ◽  
Przemysław Sawicki
Keyword(s):  
Individual Differences ◽  
Individual Difference ◽  
Delay Discounting ◽  
Reference Point ◽  
Reference Points ◽  
Cognitive Reflection Test ◽  
Process Information ◽  
Time Discounting ◽  
Cognitive Reflection ◽  
The Way

Abstract. In this work, we investigated individual differences in cognitive reflection effects on delay discounting – a preference for smaller sooner over larger later payoff. People are claimed to prefer more these alternatives they considered first – so-called reference point – over the alternatives they considered later. Cognitive reflection affects the way individuals process information, with less reflective individuals relying predominantly on the first information they consider, thus, being more susceptible to reference points as compared to more reflective individuals. In Experiment 1, we confirmed that individuals who scored high on the Cognitive Reflection Test discount less strongly than less reflective individuals, but we also show that such individuals are less susceptible to imposed reference points. Experiment 2 replicated these findings additionally providing evidence that cognitive reflection predicts discounting strength and (in)dependency to reference points over and above individual difference in numeracy.

scholarly journals Reconciling Loss Aversion and Gain Seeking in Judged Emotions

2021 ◽  
pp. 096372142199204
Author(s):  
Barbara A. Mellers ◽  
Siyuan Yin ◽  
Jonathan Z. Berman
Keyword(s):  
Loss Aversion ◽  
Reference Point ◽  
Emotional Reactions ◽  
Status Quo ◽  
New Approach ◽  
Negative Change ◽  
Starting Point ◽  
The Status ◽  
Positive Feelings ◽  
Negative Feelings

Is the pain of a loss greater in magnitude than the pleasure of a comparable gain? Studies that compare positive feelings about a gain with negative feelings about a comparable loss have found mixed answers to this question. The pain of a loss can be greater than, less than, or equal to the pleasure of a comparable gain. We offer a new approach to test hedonic loss aversion. This method uses emotional reactions to the reference point, a positive change, and a negative change. When we manipulated the reference point (i.e., pleasurable and painful), two distinct patterns emerged. Pain surpassed pleasure (loss aversion) when the reference point was positive, and pleasure exceeded pain (gain seeking) when the reference point was negative. A reference-dependent version of prospect theory accounts for the results. If the carriers of utility are changes from a reference point—not necessarily the status quo—both loss aversion and gain seeking are predicted. Loss aversion and gain seeking can be reconciled if you take the starting point into account.

scholarly journals ILRS Reference Point Determination Using Close Range Photogrammetry

2021 ◽  
Vol 11 (6) ◽  
pp. 2785
Author(s):  
Michael Lösler ◽  
Cornelia Eschelbach ◽  
Thomas Klügel ◽  
Stefan Riepl
Keyword(s):  
Reference Point ◽  
Reference Points ◽  
Geodetic Reference System ◽  
Unscented Transformation ◽  
Local Ties ◽  
Close Range Photogrammetry ◽  
Crucial Component ◽  
Space Geodetic Techniques ◽  
Close Range ◽  
Point Determination

A global geodetic reference system (GGRS) is realized by physical points on the Earth’s surface and is referred to as a global geodetic reference frame (GGRF). The GGRF is derived by combining several space geodetic techniques, and the reference points of these techniques are the physical points of such a realization. Due to the weak physical connection between the space geodetic techniques, so-called local ties are introduced to the combination procedure. A local tie is the spatial vector defined between the reference points of two space geodetic techniques. It is derivable by local measurements at multitechnique stations, which operate more than one space geodetic technique. Local ties are a crucial component within the intertechnique combination; therefore, erroneous or outdated vectors affect the global results. In order to reach the ambitious accuracy goal of 1 mm for a global position, the global geodetic observing system (GGOS) aims for strategies to improve local ties, and, thus, the reference point determination procedures. In this contribution, close range photogrammetry is applied for the first time to determine the reference point of a laser telescope used for satellite laser ranging (SLR) at Geodetic Observatory Wettzell (GOW). A measurement campaign using various configurations was performed at the Satellite Observing System Wettzell (SOS-W) to evaluate the achievable accuracy and the measurement effort. The bias of the estimates were studied using an unscented transformation. Biases occur if nonlinear functions are replaced and are solved by linear substitute problems. Moreover, the influence of the chosen stochastic model onto the estimates is studied by means of various dispersion matrices of the observations. It is shown that the resulting standard deviations are two to three times overestimated if stochastic dependencies are neglected.

Is the local wheat market a ‘market for lemons’? Certifying the supply of individual wheat farmers in Ethiopia

2021 ◽  
Author(s):  
Banawe Plambou Anissa ◽  
Gashaw Abate ◽  
Tanguy Bernard ◽  
Erwin Bulte
Keyword(s):  
Asymmetric Information ◽  
Willingness To Pay ◽  
Wheat Quality ◽  
High Quality ◽  
Auction Design ◽  
Market For Lemons ◽  
Wheat Market ◽  
Ex Ante

Abstract Bulking and mixing of smallholder supply dilutes incentives to supply high quality. We introduce wheat ‘grading and certification shops’ in Ethiopia and use an auction design to gauge willingness-to-pay (WTP) for certification. Bids correlate positively with wheat quality, and ex ante notification of the opportunity of certification improves wheat quality. These findings suggest that local wheat markets resemble a ‘market for lemons’, crippled by asymmetric information. However, aggregate WTP for grading and certification services does not re-coup the sum of fixed, flow and variable costs associated with running a single certification shop.

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