An Indirect Evolutionary Justification of Risk Neutral Bidding in Fair Division Games

International Journal of Game Theory

11 Pages Posted: 26 Jun 2019 Last revised: 19 Oct 2020

See all articles by Werner Güth

Werner Güth

Max Planck Institute for Research on Collective Goods; Luiss Guido Carli University

Paul Pezanis-Christou

U. of Adelaide School of Economics

Date Written: October 2020

Abstract

We justify risk neutral equilibrium bidding in commonly known fair division games with incomplete
information by an evolutionary setup postulating (i) minimal common knowledge, (ii) optimal responses to conjectural beliefs how others behave and (iii) evolutionary selection of conjectural beliefs with fitness measured by expected payoffs. After justifying the game forms we derive the evolutionary games for first- and second-price fair division and determine the evolutionarily stable conjectures. The latter coincide with equilibrium bidding, irrespectively of the number of bidders, i.e., heuristic belief adaptation can imply the same bidding behavior as equilibrium analysis based on common knowledge and counterfactual bidding.

Keywords: Fair division games, First-and Second-price formats, risk neutrality, indirect evolutionary analysis

JEL Classification: C72, C73, D44, D45, D74

Suggested Citation

Güth, Werner and Pezanis-Christou, Paul, An Indirect Evolutionary Justification of Risk Neutral Bidding in Fair Division Games (October 2020). International Journal of Game Theory, Available at SSRN: https://ssrn.com/abstract=3408381 or http://dx.doi.org/10.2139/ssrn.3408381

Werner Güth

Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Luiss Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

Paul Pezanis-Christou (Contact Author)

U. of Adelaide School of Economics

Adelaide
Australia

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