Learning to bid: The design of auctions under uncertainty and adaptation

Noe, Thomas, Rebello, Michael and Wang, Jun (2012) Learning to bid: The design of auctions under uncertainty and adaptation. Games and Economic Behavior, 74 (2). pp. 620-636.

Abstract

We examine auction design in a context where symmetrically informed adaptive agents with common valuations learn to bid for a good. Despite the absence of private valuations, asymmetric information, or risk aversion, bidder strategies do not converge to the Bertrand–Nash equilibrium strategies even in the long run. Deviations from equilibrium strategies depend on uncertainty regarding the value of the good, auction structure, the agentsʼ learning model, and the number of bidders. Although individual agents learn Nash bidding strategies in isolation, the learning of each agent, by flattening the best-reply correspondence of other agents, blocks common learning. These negative externalities are more severe in second-price auctions, auctions with many bidders, and auctions where the good has an uncertain value ex post.

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