The evolution of bidding behavior in private-values auctions and double auctions

Rene Saran and Roberto Serrano
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Rene Saran: Brown University

No 2007-10, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

Abstract: We apply stochastic stability to study the evolution of bidding behavior in private-values 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 bid, then truth-telling behavior is also obtained in the first-price and k-double auctions. Intuitively, the stochastically stable bid minimizes the maximal regret.

Keywords: stochastic stability; ex-post regret; second-price auction; first-price auction; k-double auction (search for similar items in EconPapers)
JEL-codes: C73 C78 D44 D83 (search for similar items in EconPapers)
Date: 2007-04-10
New Economics Papers: this item is included in nep-gth
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: The Evolution of Bidding Behavior in Private-Values Auction and Double Auctions (2007)
Working Paper: The Evolution of Bidding Behavior in Private-Values Auctions and Double Auctions (2007)
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