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The Evolution of Bidding Behavior in Private-Values Auction and Double Auctions

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Abstract

We apply stochastic stability to study the evolution of bidding behaviour in private-value second-price, first-price and k-double auctions. The learning process has a strong component of inertia but with a small probability, the bids are modified in the direction of ex-post regrets. We identify essentially a unique bid that will be used by each type in the long run. In the second-price auction, this is the truthful bid. In the first-price auction, bidding half of one’s valuation is stable. The stable bid in the k-double auction is a toughening of the Chatterjee-Samuelson linear equilibrium strategy. If we add a friction in changing one’s dib, then truth-telling behaviour is also obtained in the firstprice and k-double auctions. Intuitively, the stochastically stable bid minimizes the maximal regret.

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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2007-01.

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Date of creation: 2007
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Handle: RePEc:bro:econwp:2007-01

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Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. Noldeke Georg & Samuelson Larry, 1993. "An Evolutionary Analysis of Backward and Forward Induction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 425-454, July.
  2. S. Hart & A. Mas-Collel, 2010. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Levine's Working Paper Archive 572, David K. Levine.
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  4. Axel Ockenfels & Reinhard Selten, 2004. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Working Paper Series in Economics 7, University of Cologne, Department of Economics.
  5. Sergiu Hart, 2004. "Adaptive Heuristics," Levine's Bibliography 122247000000000471, UCLA Department of Economics.
  6. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, vol. 97(4), pages 1407-1418, September.
  7. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
  8. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  9. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
  10. Hart, Sergiu, 2002. "Evolutionary dynamics and backward induction," Games and Economic Behavior, Elsevier, vol. 41(2), pages 227-264, November.
  11. Agastya, Murali, 2004. "Stochastic stability in a double auction," Games and Economic Behavior, Elsevier, vol. 48(2), pages 203-222, August.
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Cited by:
  1. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.
  2. Roberto Serrano, 2004. "On Watson’s Non-Forcing Contracts and Renegotiation," Working Papers 2004-03, Brown University, Department of Economics.
  3. Saran Rene & Serrano Roberto, 2010. "Ex-Post Regret Learning in Games with Fixed and Random Matching: The Case of Private Values," Research Memorandum 032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Rafael Repullo & Javier Suarez, 2008. "The Procyclical Effects Of Basel Ii," Working Papers wp2008_0809, CEMFI.
  5. Joan Llull, 2008. "The Impact Of Immigration On Productivity," Working Papers wp2008_0802, CEMFI.
  6. Yusuke Kamishiro & Roberto Serrano, 2009. "Equilibrium Blocking in Large Quasilinear Economies," Working Papers 2009-12, Brown University, Department of Economics.
  7. Rene Saran & Roberto Serrano, 2010. "Ex-post regret learning in games with fixed and random matching: The case of private values," Working Papers 2010-11, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  8. Manuel Arellano & Lars Peter Hansen & Enrique Sentana, 2009. "Underidentification?," Working Papers wp2009_0905, CEMFI.
  9. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, And Debt Valuation," Working Papers wp2009_0902, CEMFI.

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