Endogenous price expectations as reference points in auctions

•Models first and second price auctions with endogenous reference points.•Reference points are “pined down” as the expected price of the good in equilibrium.•Predicts over and underbidding in equilibrium compared to the standard risk neutral Nash equilibrium.•Loss aversion lowers revenue. The paper models auctions with bidders who have reference dependent preferences and who may be loss averse. The endogenous reference point is defined as either the ex-ante or the interim expected price of the good, depending on whether bidders are naive or sophisticated. Equilibria with consistent reference points are shown to exist and are fully characterised. The model predicts that in equilibrium bidders both overbid and underbid in comparison to the standard risk neutral Nash equilibrium strategies.