Loss Aversion in Auctions: Evidence from TV

This study uses unique auction data to study loss aversion in sellers. Our analysis of TV shows including 512 auctions and 3,940 offers reveals that sellers perceive the appraised market value as the reference price. Consistent with the predictions of prospect theory, the likelihood to bargain for higher offers as well as the willingness to sell then reflects loss aversion. Specifically, we find that most bargaining happens in the loss domain and that sellers are 6% more likely to bargain for higher offers when the current offer is below the appraised market value. Conversely, the median value of accepted offers falls precisely on the reference price and willingness to sell is 11% higher for offers in the gain domain. We also investigate reference point formation and find that sellers’ initial expectations affect the outcomes of auctions. Consistent with the application of a MinMax heuristic, sellers who initially underestimate the value of their item sell below the reference price while sellers who initially overestimate the value of their item sell above the reference price. Finally, we find that duration of ownership can positively influence sellers’ price expectations, but neither duration of ownership nor emotional attachment affect seller behavior.