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The evolution of bidding behavior in private-values auctions and double auctions

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  • Rene Saran

    (Brown University)

  • Roberto Serrano

    ()
    (Brown University and IMDEA Social Sciences)

Abstract

We apply stochastic stability to study the evolution of bidding behavior in private-values 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 bid, then truth-telling behavior is also obtained in the first-price and k-double auctions. Intuitively, the stochastically stable bid minimizes the maximal regret.

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Bibliographic Info

Paper provided by Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales in its series Working Papers with number 2007-10.

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Date of creation: 10 Apr 2007
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Handle: RePEc:imd:wpaper:wp2007-10

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

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  1. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  2. Hans Jorgen Jacobsen & Mogens Jensen & Birgitte Sloth, 2000. "The Evolution of Conventions under Incomplete Information," Econometric Society World Congress 2000 Contributed Papers 1340, Econometric Society.
  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. 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.
  5. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
  6. Sergiu Hart & Andreu Mas-Colell, 2000. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Econometrica, Econometric Society, vol. 68(5), pages 1127-1150, September.
  7. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
  8. Sergiu Hart, 2005. "Adaptive Heuristics," Econometrica, Econometric Society, vol. 73(5), pages 1401-1430, 09.
  9. Sergiu Hart, 1999. "Evolutionary Dynamics and Backward Induction," Game Theory and Information 9905002, EconWPA, revised 23 Mar 2000.
  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. Rafael Repullo & Javier Suarez, 2008. "The Procyclical Effects Of Basel Ii," Working Papers wp2008_0809, CEMFI.
  2. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, And Debt Valuation," Working Papers wp2009_0902, CEMFI.
  3. Roberto Serrano & Rajiv Vohra, 2009. "Multiplicity of Mixed Equilibria in Mechanisms: a Unified Approach ot Exact and Approximate Implementation," Working Papers 2009-11, Brown University, Department of Economics.
  4. Arellano, Manuel & Hansen, Lars Peter & Sentana, Enrique, 2012. "Underidentification?," Journal of Econometrics, Elsevier, vol. 170(2), pages 256-280.
  5. Joan Llull, 2008. "The Impact Of Immigration On Productivity," Working Papers wp2008_0802, CEMFI.
  6. Roberto Serrano, 2004. "On Watson’s Non-Forcing Contracts and Renegotiation," Working Papers 2004-03, Brown University, Department of Economics.
  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 & Yusuke Kamishiro, 2009. "Equilibrium Blocking In Large Quasilinear Economies," Working Papers wp2009_0911, CEMFI.
  9. 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, Brown University, Department of Economics.

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