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The Effect of Transaction Costs on Artificial Continuous Double Auction Markets

In: Progress in Artificial Economics

Author

Listed:
  • Marta Posada

    (Universidad de Valladolid)

  • Cesáreo Hernández

    (Universidad de Valladolid)

Abstract

Fast price convergence and high allocative market efficiency (close to 100%) are two of the most robust results in Experimental Economics. When human-subjects are replaced by artificial-agents, high allocative market efficiency is also attained even if the artificial agents have zero intelligence, but price convergence depends on the agents’ learning. In this paper we study the sensitivity of Continuous Double Auction performance to the imposition of monetary costs in the market. We find that transactions costs reduce market efficiency. Price convergence results are very different when the monetary cost is imposed on the transaction or on the submissions to buy or to sell. Our agent-based market model confirms and extends previous Experimental Economics market results, and provides new behavioral explanations of the price dynamics.

Suggested Citation

  • Marta Posada & Cesáreo Hernández, 2010. "The Effect of Transaction Costs on Artificial Continuous Double Auction Markets," Lecture Notes in Economics and Mathematical Systems, in: Marco Li Calzi & Lucia Milone & Paolo Pellizzari (ed.), Progress in Artificial Economics, pages 65-74, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-13947-5_6
    DOI: 10.1007/978-3-642-13947-5_6
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