Expectation, Disappointment, and Exit: Reference Point Formation in a Marketplace
We study expectation-based reference point formation using data from an online auction marketplace. We hypothesize that exit from the marketplace is affected by disappointment from abruptly losing an auction after being the leading bidder. Expectation-based reference points that evolve over time imply that a bidder who spends more time in the lead prior to an abrupt loss will suffer a higher degree of disappointment. We find that for every additional day in the lead, bidders who lose abruptly are 6 percentage points more likely to exit. In contrast, losing bidders whose expectations are informed by early, competing bids, show no effect at all. Also, consistent with our theoretical model, more experienced bidders are less sensitive to time spent in the lead.
Related
Topics
Programs
Working Groups
More from NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
