Step-Level Reasoning and Bidding in Auctions
AbstractStep-level models of reasoning (SLR) proved to be very successful in predicting behavior in the beauty contest game. Recently, a quantified version of the model was suggested as a more general model of thinking. In particular, it was found that the distribution of choices could be represented by a Poisson distribution. I test the model in stylized first- and second-price common-value sealed-bid auctions. Equilibrium, for both auction types, prescribes that players undercut each other and profits are small. The SLR prediction, on the other hand, is different for the two auctions. Nash equilibrium predicts the outcomes poorly; the SLR model predicts the outcomes well in the second-price auction. However, while bids in the first-price auction could be represented by a Poisson distribution, this could not be attributed to step-level reasoning.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 51 (2005)
Issue (Month): 11 (November)
depth of reasoning; bidding behavior;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Matthias Sutter & Simon Czermak & Francesco Feri, 2010.
"Strategic sophistication of individuals and teams in experimental normal-form games,"
2010-02, Faculty of Economics and Statistics, University of Innsbruck.
- Sutter, Matthias & Czermak, Simon & Feri, Francesco, 2010. "Strategic Sophistication of Individuals and Teams in Experimental Normal-Form Games," Working Papers in Economics 430, University of Gothenburg, Department of Economics.
- Sutter, Matthias & Czermak, Simon & Feri, Francesco, 2010. "Strategic Sophistication of Individuals and Teams in Experimental Normal-Form Games," IZA Discussion Papers 4732, Institute for the Study of Labor (IZA).
- Sutter, Matthias & Czermak, Simon & Feri, Francesco, 2013. "Strategic sophistication of individuals and teams. Experimental evidence," European Economic Review, Elsevier, vol. 64(C), pages 395-410.
- repec:dgr:uvatin:2007015 is not listed on IDEAS
- Bucchianeri, Grace W. & Minson, Julia A., 2013. "A homeowner's dilemma: Anchoring in residential real estate transactions," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 76-92.
- Breitmoser, Yves & Tan, Jonathan H.W. & Zizzo, Daniel John, 2014.
"On the beliefs off the path: Equilibrium refinement due to quantal response and level-k,"
Games and Economic Behavior,
Elsevier, vol. 86(C), pages 102-125.
- Yves Breitmoser & Jonathan H.W. Tan & Daniel John Zizzo, 2010. "On the Beliefs off the Path: Equilibrium Refinement due to Quantal Response and Level-k," ICBBR Working Papers 9, International Centre for Behavioural Business Research.
- Yves Breitmoser & Jonathan H. W. Tan & Daniel John Zizzo, 2010. "On the beliefs off the path: Equilibrium refinement due to quantal response and level-k," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 10-05, School of Economics, University of East Anglia, Norwich, UK..
- Verena Utikal, 2013.
"I am sorry - Honest and Fake Apologies,"
Working Paper Series of the Department of Economics, University of Konstanz
2013-18, Department of Economics, University of Konstanz.
- Andrés Romeu, 2011. "Cluster Detection in Laboratory Auction Data: A Model-Based Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(4), pages 473-488, December.
- Erik Wengström, 2008. "Price competition, level-k theory and communication," Economics Bulletin, AccessEcon, vol. 3(66), pages 1-15.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.