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Zero-Intelligence Trading without Resampling

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Author Info
Marco LiCalzi () (Department of Applied Mathematics, University of Venice)
Paolo Pellizzari () (Department of Applied Mathematics, University of Venice)
Abstract

This paper studies the consequences of removing the resampling assumption from the zero-intelligence trading model in Gode and Sunder (1993). We obtain three results. First, individual rationality is no longer sufficient to attain allocative effciency in a continuous double auction; hence, the rules of the market matter. Second, the allocative effciency of the continuous double auction is higher than for other sequential protocols both with or without resampling. Third, compared to zero intelligence, the effect of learning on allocative effciency is sharply positive without resampling and mildly negative with resampling.

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File URL: http://www.dma.unive.it/wpdma/2008wp164.pdf
File Format: application/pdf
File Function: First version, 2008
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Publisher Info
Paper provided by Department of Applied Mathematics, University of Venice in its series Working Papers with number 164.

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Length: 13 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:vnm:wpaper:164

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Find related papers by JEL classification:
D40 - Microeconomics - - Market Structure and Pricing - - - General
D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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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.:
  1. Steven Gjerstad & Jason M. Shachat, 2007. "Individual Rationality and Market Efficiency," Purdue University Economics Working Papers 1204, Purdue University, Department of Economics. [Downloadable!]
  2. LiCalzi, Marco & Pellizzari, Paolo, 2007. "Simple market protocols for efficient risk sharing," Journal of Economic Dynamics and Control, Elsevier, vol. 31(11), pages 3568-3590, November. [Downloadable!] (restricted)
    Other versions:
  3. Marco LiCalzi & Paolo Pellizzari, 2007. "Which market protocols facilitate fair trading?," Working Papers 151, Department of Applied Mathematics, University of Venice. [Downloadable!]
  4. Marco LiCalzi & Paolo Pellizzari, 2006. "The allocative effectiveness of market protocols under intelligent trading," Working Papers 134, Department of Applied Mathematics, University of Venice. [Downloadable!]
  5. Gjerstad, Steven & Dickhaut, John, 1998. "Price Formation in Double Auctions," Games and Economic Behavior, Elsevier, vol. 22(1), pages 1-29, January. [Downloadable!] (restricted)
    Other versions:
  6. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February. [Downloadable!] (restricted)
  7. Hurwicz, Leonid & Radner, Roy & Reiter, Stanley, 1975. "A Stochastic Decentralized Resource Allocation Process: Part II," Econometrica, Econometric Society, vol. 43(3), pages 363-93, May. [Downloadable!] (restricted)
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  8. Paul Brewer & Maria Huang & Brad Nelson & Charles Plott, 2002. "On the Behavioral Foundations of the Law of Supply and Demand: Human Convergence and Robot Randomness," Experimental Economics, Springer, vol. 5(3), pages 179-208, December. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Marco LiCalzi & Lucia Milone & Paolo Pellizzari, 2008. "Allocative efficiency and traders' protection under zero intelligence behavior," Working Papers 168, Department of Applied Mathematics, University of Venice, revised Nov 2009. [Downloadable!]
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