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The Evolution Of Bidding Behavior In Private-Values Auctions And Double Auctions

  • Roberto Serrano

    ()

  • Rene Saran

    ()

    (CEMFI, Centro de Estudios Monetarios y Financieros)

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 CEMFI in its series Working Papers with number wp2007_0712.

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Date of creation: Aug 2007
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Handle: RePEc:cmf:wpaper:wp2007_0712
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  1. Sergiu Hart & Andreu Mas-Colell, 1997. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Game Theory and Information 9703006, EconWPA, revised 24 Mar 1997.
  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. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  4. Sergiu Hart, 1999. "Evolutionary Dynamics and Backward Induction," Game Theory and Information 9905002, EconWPA, revised 23 Mar 2000.
  5. Ellingsen, Tore, 1995. "The Evolution of Bargaining Behavior," SSE/EFI Working Paper Series in Economics and Finance 61, Stockholm School of Economics.
  6. Agastya, Murali, 2003. "Stochastic Stability In A Double Auction," Working Papers 5, University of Sydney, School of Economics.
  7. G. Noldeke & L. Samuelson, 2010. "An Evolutionary Analysis of Backward and Forward Induction," Levine's Working Paper Archive 538, David K. Levine.
  8. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
  9. Axel Ockenfels & Reinhard Selten, 2004. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Working Paper Series in Economics 7, University of Cologne, Department of Economics.
  10. Sergiu Hart, 2004. "Adaptive Heuristics," Levine's Bibliography 122247000000000471, UCLA Department of Economics.
  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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