I would like to thank Faruk Gul, Han Hong, Daniel Kahneman, Fahad Khalil, Jeffrey Livingston, Alexandre Mas, Eric Maskin, Shantanu Mukherjee, Nicola Persico, Elie Tamer, Thijs van Rens, seminar participants at various universities, the Editor Philip A. Haile, and two anonymous referees for their valuable comments and suggestions and Matthew Langley for help in creating the data set. I am greatly indebted to John Morgan and, especially, Wolfgang Pesendorfer for their guidance and support. Financial support from the Woodrow Wilson Foundation is gratefully acknowledged.
Learning by bidding
Version of Record online: 28 JUN 2008
© 2008, RAND
The RAND Journal of Economics
Volume 39, Issue 2, pages 509–529, Summer 2008
How to Cite
Hossain, T. (2008), Learning by bidding. The RAND Journal of Economics, 39: 509–529. doi: 10.1111/j.0741-6261.2008.00025.x
- Issue online: 16 SEP 2008
- Version of Record online: 28 JUN 2008
We analyze a dynamic second-price auction with an informed bidder and an uninformed bidder who, upon seeing a posted price, learns whether his valuation is above that price. In the essentially unique equilibrium, an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise. An uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder. This model also provides a rationale behind the use of a secret reserve price in private-value settings.