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The Evolution of Bidding Behavior in Private-Values Auction and Double Auctions

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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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2007-01.

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Date of creation: 2007
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Handle: RePEc:bro:econwp:2007-01
Contact details of provider: Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. Axel Ockenfels & Reinhard Selten, 2002. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Papers on Strategic Interaction 2002-12, Max Planck Institute of Economics, Strategic Interaction Group.
  2. Noeldecke,Georg & Samuelson,Larry, . "An evolutionary analysis of backward and forward induction," Discussion Paper Serie B 228, University of Bonn, Germany.
  3. Sergiu Hart & Andreu Mas-Colell, 1996. "A simple adaptive procedure leading to correlated equilibrium," Economics Working Papers 200, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 1996.
  4. Hans Jorgen Jacobsen & Mogens Jensen & Birgitte Sloth, 1997. "The evolution of conventions under incomplete information," Economics Working Papers 475, Department of Economics and Business, Universitat Pompeu Fabra, revised Feb 2000.
  5. Hart, Sergiu, 2002. "Evolutionary dynamics and backward induction," Games and Economic Behavior, Elsevier, vol. 41(2), pages 227-264, November.
  6. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
  7. Agastya, Murali, 2004. "Stochastic stability in a double auction," Games and Economic Behavior, Elsevier, vol. 48(2), pages 203-222, August.
  8. Sergiu Hart, 2013. "Adaptive Heuristics," World Scientific Book Chapters, in: Simple Adaptive Strategies From Regret-Matching to Uncoupled Dynamics, chapter 11, pages 253-287 World Scientific Publishing Co. Pte. Ltd..
  9. 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.
  10. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  11. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," SSE/EFI Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
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