Multistage Sealed-Bid k-Double Auctions: An Experimental Study of Bilateral Bargaining
ADVANCES IN UNDERSTANDING STRATEGIC BEHAVIOUR: GAME THEORY, EXPERIMENTS, AND BOUNDED RATIONALITY: ESSAYS IN HONOUR OF WERNER GUTH, London: Palgrave, 2004-2005
15 Pages Posted: 18 Oct 2004 Last revised: 24 Feb 2008
We extend the sealed-bid k-double-auction mechanism from a single- to two-round game where offers are made simultaneously during each round. If an agreement is reached on round 1, then the traders realize their profit and the game is over. If not, equipped with information about the round 1 bids and asks, the two traders move to the second and final round. Our main hypothesis is that, if payoffs are not discounted, the traders will not bargain seriously in round 1, namely, they will reveal only limited information about their (private) reservation values. In round 2 they will play the Chatterjee-Samuelson linear equilibrium (1983). The main hypothesis is tested in an iterated game with several groups of players who differ from one another in their strategic sophistication. Our results show that strategically sophisticated players learn not to disclose information on round 1 quicker than inexperienced traders and approach linear equilibrium play on the second round of the bargaining.
Keywords: Sealed-bid k-double auction, multistage, experiment, incomplete information
JEL Classification: C72, C78, D81
Suggested Citation: Suggested Citation