Convergence of outcomes and evolution of strategic behavior in double auctions
AbstractWe study the emergence of strategic behavior in double auctions with an equal number of buyers and sellers, under the distinct assumptions that orders are cleared simultaneously or asynchronously. The evolution of strategic behavior is modeled as a learning process driven by a genetic algorithm. We find that, as the size of the market grows, allocative inefficiency tends to zero and performance converges to the competitive outcome, regardless of the order-clearing rule. The main result concerns the evolution of strategic behavior as the size of the market gets larger. Under simultaneous order-clearing, only marginal traders learn to be price takers and make offers equal to their valuations/costs. Under asynchronous order-clearing, all intramarginal traders learn to be price makers and make offers equal to the competitive equilibrium price. The nature of the order-clearing rule affects in a fundamental way what kind of strategic behavior we should expect to emerge. Copyright Springer-Verlag 2013
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Bibliographic InfoArticle provided by Springer in its journal Journal of Evolutionary Economics.
Volume (Year): 23 (2013)
Issue (Month): 3 (July)
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Other versions of this item:
- Shira Fano & Marco Li Calzi & Paolo Pellizzari, 2010. "Convergence of outcomes and evolution of strategic behavior in double auctions," Working Papers 196, Department of Applied Mathematics, Università Ca' Foscari Venezia.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
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- Paolo Pellizzari, 2011. "Optimal trading in a limit order book using linear strategies," Working Papers 2011_16, Department of Economics, University of Venice "Ca' Foscari", revised Sep 2011.
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CeNDEF Working Papers
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- Ruijgrok, Matthijs, 2012. "A single-item continuous double auction game," MPRA Paper 42086, University Library of Munich, Germany.
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