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

Abstract

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.