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Learning Direction Theory and the Winner s Curse

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  • Selten, Reinhard
  • Abbink, Klaus
  • Cox, Ricarda

Abstract

We report an experiment on a decision task by SAMUELSON and BAZERMAN (1985). Subjects submit a bid for an item with an unknown value. A winner’s curse phenomenon arises when subjects bid too high and make losses. Learning direction theory can account for this. However, other influences on behaviour can also be identified. We introduce impulse balance theory to make quantitative predictions on the basis of learning direction theory. We also look at monotonic ladder processes. It is shown that for this kind of Markov chains the impulse balance point is connected to the mode of the stationary distribution.

Suggested Citation

  • Selten, Reinhard & Abbink, Klaus & Cox, Ricarda, 2001. "Learning Direction Theory and the Winner s Curse," Bonn Econ Discussion Papers 10/2001, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:102001
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Experimental economics; learning; individual decision making;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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