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The Markov Process Behind Limited Information Trading

Author

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  • Elizabeth Newlon

Abstract

Gode and Sunder (93) show that agents randomly bidding and selling in a double auction (each agent constrained not to lose money) will extract almost 100% of the surplus in the market. The trading process furthermore converges to the competitive equilibrium. Due to the limited optimization ability of their agents, the results of Gode and Sunder respond to the criticism that equilibrium theory assumes superhuman abilities of economic agents. The Gode-Sunder results were, however, for a partial equilibrium model. Hence, in evaluating of the importance of their results, it is necessary to ask whether the agents can be extended to a general equilibrium environment with the same results.

Suggested Citation

  • Elizabeth Newlon, 1996. "The Markov Process Behind Limited Information Trading," Working Papers 96-08-067, Santa Fe Institute.
    • Handle: RePEc:wop:safiwp:96-08-067
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