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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. Hans Jorgen Jacobsen & Mogens Jensen & Birgitte Sloth, 2000. "The Evolution of Conventions under Incomplete Information," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1340, Econometric Society.
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  4. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," Working Paper Series in Economics and Finance, Stockholm School of Economics 61, Stockholm School of Economics.
  5. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers, Economics Department, Princeton University 00s9, Economics Department, Princeton University.
  6. Axel Ockenfels & Reinhard Selten, 2004. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Working Paper Series in Economics, University of Cologne, Department of Economics 7, University of Cologne, Department of Economics.
  7. Sergiu Hart & Andreu Mas-Colell, 1997. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Game Theory and Information, EconWPA 9703006, EconWPA, revised 24 Mar 1997.
  8. Sergiu Hart, 1999. "Evolutionary Dynamics and Backward Induction," Game Theory and Information, EconWPA 9905002, EconWPA, revised 23 Mar 2000.
  9. Agastya, Murali, 2004. "Stochastic stability in a double auction," Games and Economic Behavior, Elsevier, Elsevier, vol. 48(2), pages 203-222, August.
  10. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, Econometric Society, vol. 61(1), pages 57-84, January.
  11. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, American Economic Association, vol. 97(4), pages 1407-1418, September.
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Cited by:
  1. Yusuke Kamishiro & Roberto Serrano, 2009. "Equilibrium Blocking in Large Quasilinear Economies," Working Papers, Brown University, Department of Economics 2009-12, Brown University, Department of Economics.
  2. Arellano, Manuel & Hansen, Lars Peter & Sentana, Enrique, 2012. "Underidentification?," Journal of Econometrics, Elsevier, Elsevier, vol. 170(2), pages 256-280.
  3. Roberto Serrano & Rajiv Vohra, 2009. "Multiplicity Of Mixed Equilibria In Mechanisms: A Unified Approach To Exact And Approximate Implementation," Working Papers, CEMFI wp2009_0908, CEMFI.
  4. Rene Saran & Roberto Serrano, 2010. "Ex-post regret learning in games with fixed and random matching: The case of private values," Working Papers, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales 2010-11, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  5. Roberto Serrano, 2004. "On Watson’s Non-Forcing Contracts and Renegotiation," Working Papers, Brown University, Department of Economics 2004-03, Brown University, Department of Economics.
  6. Repullo, Rafael & Suarez, Javier, 2008. "The Procyclical Effects of Basel II," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6862, C.E.P.R. Discussion Papers.
  7. Joan Llull, 2008. "The Impact Of Immigration On Productivity," Working Papers, CEMFI wp2008_0802, CEMFI.
  8. Saran Rene & Serrano Roberto, 2010. "Ex-Post Regret Learning in Games with Fixed and Random Matching: The Case of Private Values," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  9. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, And Debt Valuation," Working Papers, CEMFI wp2009_0902, CEMFI.

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