Learning Direction Theory and the Winner’s Curse

Reinhard Selten, Klaus Abbink and Ricarda Cox

Experimental Economics, 2005, vol. 8, issue 1, 5-20

Abstract: We report an experiment on a decision task by Samuelson and Bazerman (1985). Subjects submit a bid for an item with an unknown value. A winner’s curse phenomenon arises when subjects bid too high and make losses. Learning direction theory can account for this. However, other influences on behaviour can also be identified. We introduce impulse balance theory to make quantitative predictions on the basis of learning direction theory. We also look at monotonic ladder processes. It is shown that for this kind of Markov chains the impulse balance point is connected to the mode of the stationary distribution. Copyright Springer Science + Business Media, Inc. 2005

Keywords: experimental economics; learning; individual decision making (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (65)

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Working Paper: Learning Direction Theory and the Winner s Curse (2001)
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DOI: 10.1007/s10683-005-1407-5

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