Endowment Effect in Online Auctions
Date Issued
2011
Date
2011
Author(s)
Huang, Yao-Min
Abstract
One bidder submitting multiple bids is a prevalent phenomenon in online auctions. Some literatures argue that endowment effect may result in over-bidding. Endowment effect describes the fact that people often demand more to give up an item than they will pay to acquire it. As the leading time becomes longer, bidders may develop a psychological ownership for the object auctioned. Endowment effect makes people submit another higher bid to avoid losing “their” item. We use the data of Yahoo! Auction Taiwan to examine whether the positive relationship between the time of being highest bidder and the probability of rebidding exists. However, we find that leading time may have other effects on bidder behavior. First, a very short leading time implies that the auction is very competitive. This situation may make bidders more eager to win the auction, so the possibility of rebidding increases. Second, if the values of the object to bidders are interdependent, the leading time is informative. A bidder may infer the previous bid he submitted is too high if he led for a long period of time. These effects will make the probability of rebidding decrease with leading time. Since the perception of owning an item needs time to develop, we suggest that when the bidders lead for a relatively short period of time, the probability of rebidding and the leading time are negatively correlated. After the leading time is so long that the bidder thinks he is the owner of the object, the probability of rebidding starts to increase with leading time. The regression results in this thesis support our hypothesis.
Subjects
online auction
endowment effect
common value
multiple bidding
competitive arousal
Type
thesis
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