Discrete Rule Learning and the Bidding of the Sexes

36 Pages Posted: 5 Jul 2013

See all articles by Jason Shachat

Jason Shachat

Durham University

Lijia Wei

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE); Wuhan University - School of Economics and Management

Date Written: July 3, 2013

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

JEL Classification: D44, C72, C92, D87, C15

Suggested Citation

Shachat, Jason and Wei, Lijia and Wei, Lijia, Discrete Rule Learning and the Bidding of the Sexes (July 3, 2013). Available at SSRN: https://ssrn.com/abstract=2289734 or http://dx.doi.org/10.2139/ssrn.2289734

Jason Shachat (Contact Author)

Durham University ( email )

Durham University Business School
Mill Hill Lane
Durham, Fujian DH1 3LB
United Kingdom

Lijia Wei

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 361005
China

Wuhan University - School of Economics and Management ( email )

Wu Han, Hu-Bai 430072
China

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