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EWA Learning in Bilateral Call Markets

Camerer, Colin F. and Hsia, David and Ho, Teck-Hua (2000) EWA Learning in Bilateral Call Markets. Social Science Working Paper, 1198. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20170801-162754834

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Abstract

This chapter extends the EWA learning model to bilateral call market games (also known as the "sealed-bid mechanism" in two-person bargaining). In these games, a buyer and seller independently draw private values from commonly-known distributions and submit bids. If the buyer's bid is above the seller's, they trade at the midpoint of the two bids; otherwise they don't trade. We apply EWA by assuming that players have value-dependent bidding strategies, and they partially generalize experience from one value/cost condition to another in response to the incentives from nonlinear optimal bid functions. The same learning model can be applied to other market institutions where subjects economize on learning by taking into consideration similarity between past experience and a new environment while still recognizing the difference in market incentives between them. The chapter also presents a new application of EWA to a "continental divide" coordination game, and reviews 32 earlier studies comparing EWA, reinforcement, and belief learning. The application shows the advantages of a generalized adaptive model of behavior that includes elements of reinforcement, belief-based and direction learning as special cases at some cost of complexity for the benefit of generality and psychological appeal. It is a good foundation to build upon to extend our understanding of adaptive behavior in more general games and market institutions. In future work, we should investigate the similarity parameters, ψ and ω, to better characterize their magnitude and significance in different market institutions.


Item Type:Report or Paper (Working Paper)
Related URLs:
URLURL TypeDescription
http://resolver.caltech.edu/CaltechAUTHORS:20110217-111301805Related ItemPublished Version
ORCID:
AuthorORCID
Camerer, Colin F.0000-0003-4049-1871
Ho, Teck-Hua0000-0001-5210-4977
Additional Information:Thanks to Terry Daniel for supplying data. This research has been supported by NSF grant SBR-9730364 and a MacArthur Foundation Preferences Network postdoctoral fellowship to David Hsia. Published as Camerer, Colin F. and Hsia, David and Ho, Teck-Hua (2002) EWA learning in bilateral call markets. In: Experimental Business Research. Kluwer Academic Publishers, Boston, MA, pp. 255-284.
Group:Social Science Working Papers
Funders:
Funding AgencyGrant Number
NSFSBR-9730364
John D. and Catherine T. MacArthur FoundationUNSPECIFIED
Subject Keywords:Experimental economics, call markets, sealed-bid mechanism, learning
Series Name:Social Science Working Paper
Issue or Number:1198
Classification Code:JEL: D44, D83, C92
Record Number:CaltechAUTHORS:20170801-162754834
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20170801-162754834
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79722
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:09 Aug 2017 19:00
Last Modified:03 Oct 2019 18:23

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