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

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Abstract

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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  • Rene Saran & Roberto Serrano, 2007. "The Evolution of Bidding Behavior in Private-Values Auction and Double Auctions," Working Papers 2007-01, Brown University, Department of Economics.
    • Handle: RePEc:bro:econwp:2007-01
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    2. Ockenfels, Axel & Selten, Reinhard, 2005. "Impulse balance equilibrium and feedback in first price auctions," Games and Economic Behavior, Elsevier, vol. 51(1), pages 155-170, April.
    3. 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..
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    5. Sergiu Hart & Andreu Mas-Colell, 2013. "A Simple Adaptive Procedure Leading To Correlated Equilibrium," World Scientific Book Chapters, in: Simple Adaptive Strategies From Regret-Matching to Uncoupled Dynamics, chapter 2, pages 17-46, World Scientific Publishing Co. Pte. Ltd..
    6. Mogens Jensen & Birgitte Sloth & Hans Whitta-Jacobsen, 2005. "The evolution of conventions under incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(1), pages 171-185, January.
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    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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    Cited by:

    1. Yusuke Kamishiro & Roberto Serrano, 2009. "Equilibrium Blocking in Large Quasilinear Economies," Working Papers wp2009_0911, CEMFI.
    2. Rafael Repullo & Javier Suarez, 2008. "The Procyclical Effects of Basel II," Working Papers wp2008_0809, CEMFI.
    3. Roberto Serrano, 2009. "On Watson's Non-Forcing Contracts and Renegotiation," Economics Bulletin, AccessEcon, vol. 29(3), pages 2350-2360.
    4. Manuel Arellano & Lars Peter Hansen & Enrique Sentana, 2009. "Underidentification? (Resumen)," Working Papers wp2009_0905, CEMFI.
    5. Serrano, Roberto & Vohra, Rajiv, 2010. "Multiplicity of mixed equilibria in mechanisms: A unified approach to exact and approximate implementation," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 775-785, September.
    6. Max Bruche, 2009. "Bankruptcy Codes, Liquidation Timing, and Debt Valuation," Working Papers wp2009_0902, CEMFI.
    7. Saran, R.R.S. & Serrano, R., 2010. "Ex-Post regret learning in games with fixed and random matching: the case of private values," Research Memorandum 032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    8. Joan Llull, 2008. "The Impact of Immigration on Productivity," Working Papers wp2008_0802, CEMFI.

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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