A key prediction of expectations-based reference-dependent preferences and loss aversion in second-price private-value auctions is that the number of bidders should affect bids in auctions for real objects but not in auctions with induced monetary values. In order to test this distinctive comparative statics prediction, we develop an experiment where subjects bid in multiple auctions for real objects as well as auctions with induced values, each time facing a different number of rivals. Our results are consistent with expectations-based reference-dependent preferences and loss aversion. We find that in real-object auctions bids decline with the intensity of competition whereas in induced-value auctions, instead, bids do not vary with the intensity of competition. These findings suggest that bidders may behave differently in real-object auctions vs. induced-value ones and that a seller auctioning off a consumption good in the field may not necessarily benefit from fostering competition.
(Joint with Agnieszka A. Tymula.)