Expectation-Based Loss Aversion and Strategic Interaction

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper provides a comprehensive analysis regarding strategic interaction under expectation-based loss-aversion. First, we develop a coherent framework for the analysis by extending the equilibrium concepts of Kőszegi and Rabin (2006, 2007) to strategic interaction and demonstrate how to derive equilibria. Second, we delineate how expectation-based loss-averse players differ in their strategic behavior from their counterparts with standard expected-utility preferences. Third, we analyze equilibrium play under expectation-based loss aversion and comment on the existence of equilibria. Terms of use: Documents in EconStor mayJEL classification: C72, D01, D03, D81 Keywords: Non-Cooperative Games, Expectation-Based Loss Aversion, Reference-Dependent Preferences, Mixed Strategies * We thank Armin Falk, Paul Heidhues, Fabian Herweg, Daniel Krähmer, Matthias Kräkel, Simone Quercia, and Matthew Rabin for helpful comments and suggestions. Furthermore, we have benefited from comments made by the seminar audience at the University of Bonn. All errors are of course our own.

School Choice and Loss Aversion

“…In both interpretations the player knows his own choice of (pure strategy) action when forming her reference point. In this interpretation we depart from Dato et al (2017) who assume that the uncertainty of a mixed strategy realizes only after the player chose it and formed her reference point.…”

English versus Vickrey auctions with loss-averse bidders

“…As a result, the consumer ends up buying for a high prices as well. Dato et al (2017) extend the equilibrium concepts of Kőszegi and Rabin (2006) to strategic interaction in static games.…”

School Choice And Loss Aversion

“…In both interpretations the player knows his own choice of (pure strategy) action when forming her reference point. In this interpretation we depart fromDato et al (2017) who assume that the uncertainty of a mixed strategy realizes only after the player chose it and formed her reference point.28 More concretely, note that compact metric spaces are complete and separable and that utility functions are measurable for the induced Borel σ-algebra.…”