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Learning to bid: An experimental study of bid function adjustments in auctions and fair division games

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  • Güth, Werner
  • Ivanova, Radosveta
  • Königstein, Manfred
  • Strobel, Martin

Abstract

We examine learning behavior in auctions and Fair division games with independent private values under two different price rules, first and second price. Participants face these four games repeatedly and submit complete bid functions rather than single bids. This allows us to examine whether learning is influenced by the structural differences between games. We find that within the time horizon which we investigate, learning does not drive toward risk neutral equilibrium bidding and characterize some features of observed learning: Bid functions are adjusted globally rather than locally, decision time matches the sequencing structure of game types, game rules do matter, and directional learning theory offers a partial explanation for bid adjustments. The evidence supports a cognitive approach to learning.

Suggested Citation

  • Güth, Werner & Ivanova, Radosveta & Königstein, Manfred & Strobel, Martin, 1999. "Learning to bid: An experimental study of bid function adjustments in auctions and fair division games," SFB 373 Discussion Papers 1999,70, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    • Handle: RePEc:zbw:sfb373:199970
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    1. Güth, W., 1997. "Boundedly Rational Decision Emergence -A General Perspective and Some Selective Illustrations-," SFB 373 Discussion Papers 1997,29, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    2. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
    3. Güth, Werner & Ivanova-Stenzel, Radosveta & Königstein, Manfred & Strobel, Martin, 1999. "Auctions and fair division games under different price rules: Individual bid functions, prices and efficiency rates," SFB 373 Discussion Papers 1999,101, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    4. Abbink, Klaus & Bolton, Gary E. & Sadrieh, Abdolkarim & Tang, Fang-Fang, 2001. "Adaptive Learning versus Punishment in Ultimatum Bargaining," Games and Economic Behavior, Elsevier, vol. 37(1), pages 1-25, October.
    5. Franciosi Robert & Isaac R. Mark & Pingry David E. & Reynolds Stanley S., 1993. "An Experimental Investigation of the Hahn-Noll Revenue Neutral Auction for Emissions Licenses," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 1-24, January.
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    More about this item

    Keywords

    Learning; Auctions; Fair Division Games;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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