Discrete Rule Learning and the Bidding of the Sexes

Jason Shachat and Lijia Wei

MPRA Paper from University Library of Munich, Germany

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 value auction; discrete heterogeneity; learning; gender difference; hidden Markov model; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C15 C72 C92 D44 (search for similar items in EconPapers)
Date: 2013-07-02
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Related works:
Working Paper: Discrete Rule Learning and the Bidding of the Sexes (2013)
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