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

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Author Info
Rene Saran (Brown University)
Roberto Serrano () (Brown University & IMDEA)

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

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Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Agastya, Murali, 2004. "Stochastic stability in a double auction," Games and Economic Behavior, Elsevier, vol. 48(2), pages 203-222, August. [Downloadable!] (restricted)
  2. Ellingsen, Tore, 1997. "The Evolution of Bargaining Behavior," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 581-602, May.
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  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. [Downloadable!] (restricted)
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  4. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
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  5. Sergiu Hart, 2005. "Adaptive Heuristics," Econometrica, Econometric Society, vol. 73(5), pages 1401-1430, 09. [Downloadable!] (restricted)
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  6. Mogens Jensen & Birgitte Sloth & Hans Whitta-Jacobsen, 2005. "The evolution of conventions under incomplete information," Economic Theory, Springer, vol. 25(1), pages 171-185, 01. [Downloadable!] (restricted)
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  7. Hart, Sergiu, 2002. "Evolutionary dynamics and backward induction," Games and Economic Behavior, Elsevier, vol. 41(2), pages 227-264, November. [Downloadable!] (restricted)
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  8. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
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  10. Sergiu Hart & Andreu Mas-Colell, 2000. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Econometrica, Econometric Society, vol. 68(5), pages 1127-1150, September.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Saran Rene, 2007. "In Bargaining We Trust," Research Memoranda 049, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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