Believing in correlated types in spite of independence: An indirect evolutionary analysis

The risk-neutral equilibrium bidding strategy for first-price auctions with independent private values is justified without assuming a well-defined Bayesian game. Bidders, aware of their own value, assume the private values to be linearly related. The latter, however, are independent and identically distributed, and this is only known by Nature. Allowing for arbitrary linear common value beliefs, and assuming optimal bidding for such beliefs we derive the unique evolutionarily stable conjectural belief and justify risk neutral bidding in a new and hopefully innovative way.