Learning direction theory and the winner's curse

Reinhard Selten, Klaus Abbink, Ricarda Cox

Research output: Contribution to journalArticleResearchpeer-review

66 Citations (Scopus)

Abstract

We report an experiment on a decision task by Samuelson and Bazerman (1985). Subjects submit a bid for an item with an unknown value. A winnerrsquos curse phenomenon arises when subjects bid too high and make losses. Learning direction theory can account for this. However, other influences on behaviour can also be identified. We introduce impulse balance theory to make quantitative predictions on the basis of learning direction theory. We also look at monotonic ladder processes. It is shown that for this kind of Markov chains the impulse balance point is connected to the mode of the stationary distribution.
Original languageEnglish
Pages (from-to)5 - 20
Number of pages16
JournalExperimental Economics
Volume8
Issue number1
DOIs
Publication statusPublished - 2005
Externally publishedYes

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