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Discrete Rule Learning and the Bidding of the Sexes

  • Jason Shachat

    ()

    (The Wang Yanan Institute for Studies in Economics and MOE Key Laboratory in Econometrics, Xiamen University)

  • Lijia Wei

    ()

    (School of Economics and Management,Wuhan University)

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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File URL: http://feel.xmu.edu.cn/RePEc/wpaper/Discrete_Rule_Learning_and_the_Bidding_of_the_Sexes.pdf
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Paper provided by Xiamen Unversity, The Wang Yanan Institute for Studies in Economics, Finance and Economics Experimental Laboratory in its series Working Papers with number 1302.

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Length: 36 pages
Date of creation: 02 Jul 2013
Date of revision: 02 Jul 2013
Handle: RePEc:fee:wpaper:1302
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  1. 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.
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