Tracking the Invisible Hand: Convergence of Double Auctions to Competitive Equilibrium
AbstractEconomics is the science of want and scarcity. We show that want and scarcity, operating within a simple exchange institution (double auction), are sufficient for an economy consisting of multiple inter--related markets to attain competitive equilibrium (CE). We generalize Gode and Sunder's (1993a, 1993b) single--market finding to multi--market economies, and explore the role of the scarcity constraint in convergence of economies to CE. When the scarcity constraint is relaxed by allowing arbitrageurs in multiple markets to enter speculative trades, prices still converge to CE, but allocative efficiency of the economy drops. \\ Optimization by individual agents, often used to derive competitive equilibria, are unnecessary for an actual economy to approximately attain such equilibria. From the failure of humans to optimize in complex tasks, one need not conclude that the equilibria derived from the competitive model are descriptively irrelevant. We show that even in complex economic systems, such equilibria can be attained under a range of surprisingly weak assumptions about agent behavior.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 1994-11.
Length: 22 pages
Date of creation: 1994
Date of revision:
Contact details of provider:
Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
Other versions of this item:
- Antoni Bosch-Domenech & Shyam Sunder, 2000. "Tracking the Invisible Hand: Convergence of Double Auctions to Competitive Equilibrium," Computational Economics, Society for Computational Economics, vol. 16(3), pages 257-284, December.
- Antoni Bosch-Domènech & Shyam Sunder, 1996. "Tracking the invisible hand: Convergence of double auctions to competitive equilibrium," Economics Working Papers 91, Department of Economics and Business, Universitat Pompeu Fabra.
- Shyam NMI Sunder & Antoni Bosch-Domènech, 2001. "Tracking the Invisible Hand: Convergence of Double Auctions to Competitive Equilibrium," Yale School of Management Working Papers ysm204, Yale School of Management.
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sunder, S., 1992. "Lower Bounds for Efficiency of Surplus Extraction in Double Auctions," GSIA Working Papers 1992-17, Carnegie Mellon University, Tepper School of Business.
- Smith, Vernon L, 1991. "Rational Choice: The Contrast between Economics and Psychology," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 877-97, August.
- Rothschild, Emma, 1994. "Adam Smith and the Invisible Hand," American Economic Review, American Economic Association, vol. 84(2), pages 319-22, May.
- Theodore W. Schultz, 1962. "Reflections on Investment in Man," Journal of Political Economy, University of Chicago Press, vol. 70, pages 1.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Steve Spear).
If references are entirely missing, you can add them using this form.