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The Evolution Of Bidding Behavior In Private-Values Auctions And Double Auctions

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  • Roberto Serrano

    ()

  • Rene Saran

    ()
    (CEMFI, Centro de Estudios Monetarios y Financieros)

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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Bibliographic Info

Paper provided by CEMFI in its series Working Papers with number wp2007_0712.

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Date of creation: Aug 2007
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Handle: RePEc:cmf:wpaper:wp2007_0712

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Keywords: Stochastic stability; ex-post regret; second-price auction; first-price auction; k-double auction.;

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References

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  1. Mogens Jensen & Birgitte Sloth & Hans Jørgen Whitta-Jacobsen, . "The Evolution of Conventions under Incomplete Information," Discussion Papers 03-12, University of Copenhagen. Department of Economics, revised Mar 2003.
  2. Ellingsen, Tore, 1997. "The Evolution of Bargaining Behavior," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 581-602, May.
  3. Ockenfels, Axel & Selten, Reinhard, 2005. "Impulse balance equilibrium and feedback in first price auctions," Games and Economic Behavior, Elsevier, vol. 51(1), pages 155-170, April.
  4. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  5. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
  6. Noeldecke,Georg & Samuelson,Larry, . "An evolutionary analysis of backward and forward induction," Discussion Paper Serie B 228, University of Bonn, Germany.
  7. Sergiu Hart & Andreu Mas-Colell, 2000. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Econometrica, Econometric Society, vol. 68(5), pages 1127-1150, September.
  8. Hart, Sergiu, 2002. "Evolutionary dynamics and backward induction," Games and Economic Behavior, Elsevier, vol. 41(2), pages 227-264, November.
  9. Sergiu Hart, 2004. "Adaptive Heuristics," Discussion Paper Series dp372, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  10. Agastya, Murali, 2004. "Stochastic stability in a double auction," Games and Economic Behavior, Elsevier, vol. 48(2), pages 203-222, August.
  11. 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.
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Citations

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Cited by:
  1. Yusuke Kamishiro & Roberto Serrano, 2009. "Equilibrium Blocking in Large Quasilinear Economies," Working Papers 2009-12, Brown University, Department of Economics.
  2. 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.
  3. Rene Saran & Roberto Serrano, 2010. "Ex-Post Regret Learning in Games with Fixed and Random Matching: The Case of Private Values," Levine's Working Paper Archive 661465000000000083, David K. Levine.
  4. Joan Llull, 2008. "The Impact Of Immigration On Productivity," Working Papers wp2008_0802, CEMFI.
  5. Arellano, Manuel & Hansen, Lars Peter & Sentana, Enrique, 2012. "Underidentification?," Journal of Econometrics, Elsevier, vol. 170(2), pages 256-280.
  6. Rafael Repullo & Javier Suarez, 2008. "The Procyclical Effects Of Basel Ii," Working Papers wp2008_0809, CEMFI.
  7. 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).
  8. Roberto Serrano, 2009. "On Watson'S Non-Forcing Contracts And Renegotiation," Working Papers wp2009_0907, CEMFI.
  9. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, And Debt Valuation," Working Papers wp2009_0902, CEMFI.

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