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How Naiveté improves efficiency in trading with preplay communication

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  • Saran, Rene

Abstract

If a positive proportion of traders are naive (i.e., honestly reveal their types and bid/ask truthfully), then efficiency increases in a double auction with preplay communication. Presence of naive traders induces strategic traders to decrease the misrepresentation of their private information.

Suggested Citation

  • Saran, Rene, 2012. "How Naiveté improves efficiency in trading with preplay communication," Economics Letters, Elsevier, vol. 117(1), pages 311-314.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:311-314
    DOI: 10.1016/j.econlet.2012.05.031
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    References listed on IDEAS

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    1. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    2. Matthews, Steven A. & Postlewaite, Andrew, 1989. "Pre-play communication in two-person sealed-bid double auctions," Journal of Economic Theory, Elsevier, vol. 48(1), pages 238-263, June.
    3. Kalyan Chatterjee & William Samuelson, 1983. "Bargaining under Incomplete Information," Operations Research, INFORMS, vol. 31(5), pages 835-851, October.
    4. Farrell, Joseph & Gibbons, Robert, 1989. "Cheap talk can matter in bargaining," Journal of Economic Theory, Elsevier, vol. 48(1), pages 221-237, June.
    5. Saran, Rene, 2011. "Bilateral trading with naive traders," Games and Economic Behavior, Elsevier, vol. 72(2), pages 544-557, June.
    6. Valley, Kathleen & Thompson, Leigh & Gibbons, Robert & Bazerman, Max H., 2002. "How Communication Improves Efficiency in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 38(1), pages 127-155, January.
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    Cited by:

    1. Alex Possajennikov & Rene Saran, 2018. "Inefficiency in Private Value Bargaining with Naive Players: An Experimental Study," Discussion Papers 2018-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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    More about this item

    Keywords

    Double auction; Preplay communication; Naive traders; Efficiency;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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