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.
We thank Ned Augenblick, Stefano DellaVigna, Etan Green, Ulrike Malmendier, Conrad Miller, Don Moore, Collin Raymond, Alex Rees-Jones, Hersh Shefrin and Charlie Sprenger for helpful discussions, as well as Dan Ariely and George Lowenstein for comments on a previous draft. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Matt Backus has in the past been a paid consulting researcher for eBay Inc.Steven Tadelis
eBay Inc, operator of ebay.com, has provided access to the data that is the basis of this study.
For academic years 2011-2012 and 2012-2013 I was a full-time research scientist with eBay Research Labs. At the end of that period I continued on as a consultant, with continued data access and a significant financial relationship through March 2016.
EBay’s legal team reviewed the output of our research to ensure that public release would not breach customer’s privacy or eBay’s obligation to shareholders.
Though eBay has a material interest in understanding consumer behavior, we do not believe this imposed a conflict of interest that would have affected our results or the course of our research.