Discrete Rule Learning and the Bidding of the Sexes

Jason Shachat and Lijia Wei

No 1302, Working Papers from Xiamen Unversity, The Wang Yanan Institute for Studies in Economics, Finance and Economics Experimental Laboratory

Abstract: 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.

Keywords: Private values auction; Discrete heterogeneity; Learning; Gender difference (search for similar items in EconPapers)
JEL-codes: C72 C73 C91 C92 D44 D87 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013-07-02, Revised 2013-07-02
New Economics Papers: this item is included in nep-dem and nep-exp
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Working Paper: Discrete Rule Learning and the Bidding of the Sexes (2013)
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