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Strategic Thinking and Subjective Expectations in a Double Auction Experiment

abstract This paper investigates the role of subjective expectations (beliefs) within a double auction experiment. The experiment elicits agents' probabilistic subjective beliefs about the bidding choices of other market participants. Observed bidding choices often deviate from the predictions of the risk-neutral Bayesian Nash Equilibrium (BNE) model. Evidence suggests that the failure of the game to converge to equilibrium is due to subjective beliefs not converging to BNE beliefs. I show that subjective beliefs cannot be modeled either by BNE beliefs or by empirical/historical beliefs, and that elicited subjective beliefs help explain observed bidding choices.
   
type working paper (English)
   
keywords auctions, beliefs, subjective expectations, private information, experiments
   
date of appearance 2012
review blind review
   
profile area SEPS - Quantitative Economic Methods
citation Neri, C. (2012). Strategic Thinking and Subjective Expectations in a Double Auction Experiment.