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Mental Processes and Strategic Equilibration: an fMRI Study of Selling Strategies in Second Price Auctions

Grether, David M. and Plott, Charles R. and Rowe, Daniel B. and Sereno, Martin and Allman, John M. (2007) Mental Processes and Strategic Equilibration: an fMRI Study of Selling Strategies in Second Price Auctions. Experimental Economics, 10 (2). pp. 105-122. ISSN 1386-4157. doi:10.1007/s10683-006-9135-z.

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This study is the first to attempt to isolate a relationship between cognitive activity and equilibration to a Nash Equilibrium. Subjects, while undergoing fMRI scans of brain activity, participated in second price auctions against a single competitor following predetermined strategy that was unknown to the subject. For this auction there is a unique strategy that will maximize the subjects’ earnings, which is also a Nash equilibrium of the associated game theoretic model of the auction. As is the case with all games, the bidding strategies of subjects participating in second price auctions most often do not reflect the equilibrium bidding strategy at first but with experience, typically exhibit a process of equilibration, or convergence toward the equilibrium. This research is focused on the process of convergence. In the data reported here subjects participated in sixteen auctions, after which all subjects were told the strategy that will maximize their revenues, the theoretical equilibrium. Following that announcement, sixteen more auctions were performed. The question posed by the research concerns the mental activity that might accompany equilibration as it is observed in the bidding behavior. Does brain activation differ between being equilibrated and non-equilibrated in the sense of a bidding strategy? If so, are their differences in the location of activation during and after equilibration? We found significant activation in the frontal pole especially in Brodmann’s area 10, the anterior cingulate cortex, the amygdala and the basal forebrain. There was significantly more activation in the basal forebrain and the anterior cingulate cortex during the first sixteen auctions than in the second sixteen. The activity in the amygdala shifted from the right side to the left after the solution was given.

Item Type:Article
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Sereno, Martin0000-0003-0302-0325
Additional Information:© 2007 Economic Science Association. Received: 23 June 2004; Revised: 16 May 2006; Accepted: 16 May 2006; Published online: 13 February 2007. The research support of the Caltech Laboratory for Experimental Economics and the National Science Foundation are gratefully acknowledged. The paper was presented at the Conference at the University of Minnesota Conference on Experimental Research in 2000 and circulated as a working paper in April 2001.
Funding AgencyGrant Number
Caltech Laboratory for Experimental EconomicsUNSPECIFIED
Subject Keywords:experiments, auctions
Issue or Number:2
Classification Code:JEL: D440, L620, L810, C930, C900
Record Number:CaltechAUTHORS:20140128-133234344
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:43539
Deposited On:29 Jan 2014 16:00
Last Modified:10 Nov 2021 16:39

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