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

Abstract

We justify risk neutral equilibrium bidding in commonly known fair division games with incomplete information in an evolutionary setup by postulating (i) minimal common knowledge assumptions, (ii) optimally responding agents to conjectural beliefs about how others behave and (iii) evolution of conjectural beliefs with fitness measured by expected payoffs. We axiomatically justify the game forms, 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 bids.

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

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