Learning Direction Theory and the Winner’s Curse
AbstractWe report an experiment on a decision task by SAMUELSON and BAZERMAN (1985). Subjects submit a bid for an item with an unknown value. A winner’s curse phenomenon arises when subjects bid too high and make losses. Learning direction theory can account for this. However, other influences on behaviour can also be identified. We introduce impulse balance theory to make quantitative predictions on the basis of learning direction theory. We also look at monotonic ladder processes. It is shown that for this kind of Markov chains the impulse balance point is connected to the mode of the stationary distribution.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse10_2001.
Date of creation: Jan 2001
Date of revision:
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Experimental economics; learning; individual decision making;
Other versions of this item:
- Reinhard Selten & Klaus Abbink & Ricarda Cox, 2005. "Learning Direction Theory and the Winnerâ€™s Curse," Experimental Economics, Springer, vol. 8(1), pages 5-20, April.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-04-21 (All new papers)
- NEP-EVO-2001-04-21 (Evolutionary Economics)
- NEP-GTH-2001-04-21 (Game Theory)
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