Adaptive Traders and the Design of Financial Markets
AbstractThis paper studies a financial market populated by adaptive traders. Learning is modeled following Camerer and Ho (1999) . A call market and a Walrasian tatonnement are compared in an environment in which both institutions have the same Nash and competitive equilibrium outcomes. When traders learn via a belief-based model, equilibrium is discovered in both types of markets. In contrast, when traders learn via a reinforcement-based model, convergence to equilibrium is achieved in the Walrasian tatonnement but not in the call market. This paper suggests that market mechanisms can be designed to foster traders' learning of equilibrium strategies. Copyright 2007 by The American Finance Association.
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Bibliographic InfoPaper provided by University of Toulouse 1 Capitole in its series Open Access publications from University of Toulouse 1 Capitole with number http://neeo.univ-tlse1.fr/2137/.
Date of creation: Dec 2007
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Publication status: Published in Journal of Finance (2007-12) v.62, p.2835-2863
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Other versions of this item:
- Sebastien Pouget, 2007. "Adaptive Traders and the Design of Financial Markets," Journal of Finance, American Finance Association, vol. 62(6), pages 2835-2863, December.
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- Albert Banal-Estañol & Augusto Rupérez-Micola, 2010.
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