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Discrete Rule Learning and the Bidding of the Sexes

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  • Shachat, Jason
  • Wei, Lijia

Abstract

We present a hidden Markov model of discrete strategic heterogeneity and learning in first price independent private values auctions. The model includes three latent bidding rules: constant absolute mark-up, constant percentage mark-up, and strategic best response. Rule switching probabilities depend upon a bidder's past auction outcomes. We apply this model to a new experiment that varies the number of bidders, the auction frame between forward and reverse, and includes the collection of saliva samples - used to measure subjects' sex hormone levels. We find the proportion of bidders following constant absolute mark-up increases with experience, particularly when the number of bidders is large. The primary driver here is subjects' increased propensity to switch strategies when they experience a loss (win) reinforcement when following a strategic (heuristic) rule. This affect is stronger for women and leads them spend more time following boundedly rational rules. We also find women in the Luteal and Menstrual phases of their menstrual cycle bid less aggressively, in terms of surplus demanded, when following the best response rule. This combined with spending more time following simple rules of thumbs explains gender differences in earnings.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 47953.

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Date of creation: 02 Jul 2013
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Handle: RePEc:pra:mprapa:47953

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Keywords: private value auction; discrete heterogeneity; learning; gender difference; hidden Markov model; laboratory experiment;

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  1. Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Virginia Economics Online Papers 345, University of Virginia, Department of Economics.
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  3. Kagel, John H & Levin, Dan, 1993. "Independent Private Value Auctions: Bidder Behaviour in First-, Second- and Third-Price Auctions with Varying Numbers of Bidders," Economic Journal, Royal Economic Society, vol. 103(419), pages 868-79, July.
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  5. Gill, David & Prowse, Victoria, 2010. "Gender Differences and Dynamics in Competition: The Role of Luck," IZA Discussion Papers 5022, Institute for the Study of Labor (IZA).
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  7. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
  8. John Geweke, 1991. "Evaluating the accuracy of sampling-based approaches to the calculation of posterior moments," Staff Report 148, Federal Reserve Bank of Minneapolis.
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  10. Oliver Kirchkamp & J. Philipp Reiß, 2008. "Heterogeneous bids in auctions with rational and markdown bidders - Theory and Experiment," Jena Economic Research Papers 2008-066, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  11. Jason Shachat & Lijia Wei, 2012. "Procuring Commodities: First-Price Sealed-Bid or English Auctions?," Marketing Science, INFORMS, vol. 31(2), pages 317-333, March.
  12. Neugebauer, Tibor & Selten, Reinhard, 2006. "Individual behavior of first-price auctions: The importance of information feedback in computerized experimental markets," Games and Economic Behavior, Elsevier, vol. 54(1), pages 183-204, January.
  13. Crawford, Vincent P. & Iriberri, Nagore, 2005. "Level-k Auctions: Can a Non-Equilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," University of California at San Diego, Economics Working Paper Series qt12586197, Department of Economics, UC San Diego.
  14. R. Mark Isaac & Svetlana Pevnitskaya & Kurt Schnier, 2008. "Individual Behaavior and Bidding Heterogeneity in Sealed Bid Auctions Where the Number of Bidders is Unknown," Working Papers wp2008_07_02, Department of Economics, Florida State University.
  15. Werner G¸th & Radosveta Ivanova-Stenzel & Manfred K–nigstein & Martin Strobel, 2003. "Learning to bid - an experimental study of bid function adjustments in auctions and fair division games," Economic Journal, Royal Economic Society, vol. 113(487), pages 477-494, 04.
  16. Yan Chen & Peter Katuscak & Emre Ozdenoren, 2005. "Why Can’t a Woman Bid More Like a Man?," CERGE-EI Working Papers wp275, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  17. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
  18. Pearson, Matthew & Schipper, Burkhard C., 2013. "Menstrual cycle and competitive bidding," Games and Economic Behavior, Elsevier, vol. 78(C), pages 1-20.
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